Pandora Q4 profits drop but 2017 was strong year overall

Danish fashion jeweller Pandora reported 15% revenue growth for 2017 on Tuesday as it emerged just-about-unscathed from a “challenging and eventful year”. Profits were higher for the year but lower for the final quarter. And it expects growth in the year ahead as it continues to open new stores, although Q1 sales will be less than its guidance figure.


That 15% sales rise was in local currencies but on a Danish Krone basis, revenue rose a slightly smaller 13% to DKK22.781 billion. Yet sales at the firm’s own retail stores were up a powerful 42% (or 46% in local currencies) with comparable sales from them up a healthy 11%. That’s important as Pandora is increasingly focusing on directly operated stores rather than franchises so has plenty of potential for future growth.


The company’s products seems to be popular worldwide with EMEA total sales up 13%, the Americas up 4% (although comp sales there rose a better 15%)  and Asia-Pacific revenue up a strong 25%. 

The company said that revenue from its key Charms category increased 8% and revenue from Bracelets was up by the same amount. It added that full jewellery brand development remains on track with combined revenue from the Rings, Earrings, and Necklaces & Pendants category up 28%. The three star categories represented 26% of group revenue compared with 23% in 2016.

But it wasn’t all good news as the gross margin fell to 74.5% in 2017 from 75.1% a year earlier. Profit on an ebitda basis of DKK8.505 billion translated into an Ebitda margin of 37.3%. This was down from 2016’s 39.1% margin, even though the year-earlier profit figure was lower at DKK7.922 billion.

The firm’s effective tax rate was 24.8% in 2017 compared with 21.2% in 2016 due to the new US tax reform as well as repatriation of dividend related to Pandora Production Co Ltd in Thailand.

Those issues seem to have affected Q4 profit too as that fell 7% to DKK1.95 billion from DKK2.09 billion, although the lower figure matched analyst expectations. The ebitda margin dropped to 40.1% from 41.1% in the quarter but revenue in the period rose to DKK7.6 billion from DKK6.6 billion.

So what of the future? The company expects to increase revenue by 7%-10% in local currencies for the year ahead and expects an ebitda margin of around 35%, which is again lower than the previous year.

As mentioned, CEO Anders Colding Friis said “2017 was a challenging and eventful year,” but he added that he’s confident the firm’s strategy “will deliver continued growth and strong profitability in 2018 and the years to come.”

To drive revenue higher in 2018, the firm will continue to increase the owned and operated part of the store network as well as “develop and launch new and more innovative products.” And it’s that activity, requiring major capex spending as it does, that’s going to dent the ebitda margin.

The company expects to add around 200 concept stores during the year of which roughly 50% will be opened in EMEA, 25% in the Americas and 25% in Asia Pacific. Two-thirds of them should be company-owned stores as the firm works to increase that directly operated store base. This process will also see it continuing to acquire franchise stores in 2018 and one upside of this should be “a full-year tailwind in revenue of roughly DKK1 billion from the effect of acquisitions made [in] 2017 [and] 2018.”

But what about the expected below-guidance sales for Q1? It said sales should fall short of the 7%-10% predicted range due to “the dependency on newness in the product assortment, which is expected to gradually improve throughout the year.” Currency headwinds should also be an issue in Q1.

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