Stock rebalancing takes toll but brand pushes on with expansion.

Pandora has released a set of Q2 results in line with expectations as its stock balancing programme, launched at the beginning of the year, continues to have adverse effects on the financial fortunes of the jewellery brand, but despite this the brand is planning to continue with aggressive international expansion.

In Q2 group revenue fell 9.5% to DKK1.26bn with Europe registering the largest drop of 16.6%. Revenue in the Americas fell 5.1% while the Asia Pacific region registered a drop of 8.1%. Branded revenue as a percentage of total revenues increased to 75.3%, up from 73.4% the year before.


Net profits decreased at Pandora in Q2 to DKK63 million, plummeting 89.9%. Net profit in the same quarter of 2011 was DKK626 million, although the company said that this figure included a positive effect of DKK296 million from the revaluation of the CWE earn-out provision. Even re-evaluating the figures to adjust for these effects Q2 2012 net profit was still down 80.9% year on year.

Gross margin in Q2 was 67.9%, down from 74.4% in the comparable period the year before.

During the period Pandora accepted returned product from retailers to the value of DKK 183 million (xxx) and replaced DKK 310 million of stock. In total, the brand has received returns of discounted products to the value of DKK 523 million and replaced DKK 472 million in the first half of its financial year.

Pandora said that excluding the negative impact of the one-off stock balancing campaign it expects the year to deliver revenue growth in the mid-single digits, gross margin in the mid 60s driven by the impact of commodity prices and a reduction in selling prices and EBITDA margin in the mid 20s, up from Q2’s EBITDA of 17.5%.

These figures are based on the brand’s plans to open 200 concept stores in 2012; it has already opened 94 in the first half of the year. 135 of the openings have been planned for new markets Italy, France, Russia and Asia.

Pandora chief executive Björn Gulden said: "Our operations continued to develop as expected during the quarter, even with a slightly better gross margin helped by a changed product mix. The execution on the stock balancing campaign continued into Q2 2012 and was very well received by our retail partners across all our markets. Even though the stock balancing campaign, short-term, hurts our revenue, cost ratio and profitability in 2012, the campaign has proven to be the right action to help our retailers improve the quality of their stock. We are on track to deliver on what we have promised the market in our financial guidance for the full year."