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UK accounts for 13.9% of Pandora’s revenue in Q3


Brand concludes "stock balancing"; results better than anticipated.

Pandora announced its Q3 interim results today, with group revenue sitting at DKK 1,794 million (£193m) and net profit totalling DKK 380 million (£40.8m).

The brand said that it has continued its stock balancing campaign in Q3, with the aim of improving the quality of the stock mix at its key retail partners.

The stock balancing program was launched in February this year as a one-off, time limited global campaign. The brand said the campaign is now “largely concluded”.

Its group revenue is said to have been slightly better than previously anticipated due, in the main, to “positive foreign exchange developments”, but, as the brand says it expected, revenue was adversely impacted by the effect from the stock balancing campaign launched in Q1 2012.

The brand is said to have received returns of discontinued products with a wholesale value of DKK 86 million (£9.2m) and has replaced it with stock worth DKK 127 million (£13.6m). So far in 2012, Pandora says it has received returns of discontinued products totalling DKK 609 million (£65.4m), and replaced it with stock of a slightly lower value, totalling DKK 599 million (£64.3m).

Market Share and Concept Stores

Highlights from its Q3 interim results outline that group revenue increased by 14.3% in Q3 2012 compared to Q3 2011.

In terms of its market share, the Americas increased by 21.9%, Europe increased by 13.1%, while its share of the Asia Pacific market dropped 10.7%.

In Europe sales were largely driven by the UK, Italy, Russia and France, with revenue increasing 11% year-on-year, excluding foreign exchange movements.

The UK remains Pandora’s largest single European market, with revenue accounting for 13.9% of the brand’s Q3 revenue, increasing 12.2% year-on-year.

Based on it concept stores, which have been operating for 12 months or more, like-for-like sales in the UK increased by 0.9% in Q3 2012, compared to Q3 2011.

Germany, the second largest market for the brand, decreased 24.5% in Q3, and the brand says it is continuing to address the issue of “over-distribution” in Germany, by closing a number of stores it considers sub-optimally located. It has closed 500, mostly unbranded, points of sale in Germany in 2012.

Other European revenue increased by 43.5% in Q3 2012 compared to Q3 2011, primarily driven by significant growth from Italy, Russia and France. Pandora’s third party distributors in Greece, Spain, Portugal and Ireland are still suffering from low trading. Pandora said they are continuing to de-stock in order to optimise local inventory levels, nothing that revenue in these countries has been negatively affected in the quarter by the stock balancing campaign.

During Q3 2012 the number of branded stores in Europe increased by 237 stores to a total of 2,203 branded stores, accounting for 34.2% of the total number of stores. The brand has closed its accounts with 544 unbranded stores.

In terms of sale, direct distribution accounted for 97.9% of revenue in Q3 2012 compared to 96.4% in Q3 2011. Branded sales in markets with direct distribution accounted for 83.0% in Q3 2012, while stores accounted for 61.8% of the branded sales in Q3 2012.

Branded stores in direct distribution markets accounted for 43.4% of the total number of stores at the end of Q3 2012 compared to 34.6% at the end of Q3 2011.

Financial Highlights

Pandora’s gross margin was 64.1% in Q3 2012, down from 73.6% in Q3 2011, with an EBITDA margin of 28.0% in Q3 2012, with EBITDA decreasing 6.2% to DKK 503 million (£53.9m).

Its gross profit was DKK 1,150 million (£123m) in Q3 2012 compared to DKK 1,155 million in Q3 2011, resulting in a gross margin of 64.1% in Q3 2012.

Net profit increased by 11.4% to DKK 380 million (£40.8m) in Q3, up from DKK 341 million in Q3 2011.

In terms of product offer, the brand’s Q3 revenue from its charms increased by 28.8% compared to Q3 2011, while revenue from silver and gold charms bracelets increased by 42.6% compared to Q3 2011.

The two categories represented 87.5% of total revenue in Q3 2012, up more than 10% on 2011 Q3 figures, while its revenue from the sale of rings increased by 37.5% and represented 7.4% of total revenue in Q3 2012, also up on Q3 last year.

Looking ahead, Pandora says it expects revenue for 2012 to be above DKK 6.3 billion (£676m), from its previously guided above DKK 6 billion.

It is expecting to open a total of 200 new concept stores in 2012 and approximately 100 – down from a forecast figure of 135 – new concept stores and shop-in-shops in its key new markets such as Italy, France, Russia and Asia, during the course of 2012.

Pandora’s chief executive’s view

Pandora’s chief executive Björn Gulden said of the interim results: “I am happy to report that we continue to perform in line with our 18 months turn-around plan. Third quarter developed even a little better than we expected and we have, based on the tailwind from the currency development, decided to slightly upgrade our revenue guidance.

“One of our major initiatives – the stock balancing campaign – was continued, mainly impacting the US and third party distribution, during Q3 2012. We have now largely concluded the campaign and it will, as communicated earlier, be finished by end of 2012.

“The other major initiative in 2012 was the realignment of price and product architecture. We already reported that the product launched in spring/summer performed well based on sales in to all channels and sales out from concept stores. I can now report that this trend is continuing and that the replenishment of these products was much higher in Q3 than it was last year.”

Gulden added that the launch of the AW12 Pandora collection has led to encouraging sales in all channels. Sales of the collection is said to have been “very well received in stores”, with like-for-like sales revenue of the collection in the autumn part of Q3 2012 improving sales compared to last year’s autumn collection.

He said: “I am also happy to see that, even in a difficult retail environment, our major markets have all positive or improved like-for-like sales out in the concept stores.

“The year is not yet finished. We have our most important quarter to come, but we feel confident that our improved product, our lower prices and our other operational improvements will put us in the position of achieving our updated financial goals for the full year."

The brand recently launched its UK-only campaign with Girls Aloud, which retailer feedback offers should bring key sales in Q4, in the run up to Christmas.

Pandora is coming to the end of tan 18 month “turn-around plan” initiated in August 2011. Its board of directors are said to have intensified their analysis of the existing capital structure and are expected, in Q4 2012, to continue the work to define what they believe will be an optimal capital structure for the company going forward including decisions on potential ways to distribute cash to the shareholders.

The review’s results are likely to appear in Pandora’s Q4 results, due to be released in February 2013.



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