Pandora Sees Sales in Q3 Fall 5%, Marking an Improvement
● Online revenues jumped 89 percent over the quarter to reach 21 percent of sales.
PARIS — Pandora flagged uncertainty from the coronavirus crisis heading into the crucial holiday season, even as it reported improvement in business over the third quarter, with a 5 percent decline in organic sales.
“We are now facing a period with new lockdowns, but we are prepared to navigate through the heightened uncertainty, and we have the financial strength to sustain a prolonged period with lockdowns,” said Alexander Lacik, president and chief executive officer.
The executive cited double-digit growth in sales in the U.S. and the U.K over the quarter as signs that the company had turned business around.
Under Lacik, who joined the jeweler just over a year ago, Pandora has been undergoing a brand reboot to regain popularity and adjust to declining foot traffic in malls, where much of its sprawling network of stores is located.
Efforts, which had begun to pay off before the coronavirus pandemic hit, have been focused on bulking up marketing investments; buying back wholesale inventory; redesigning stores; streamlining product assortments with an emphasis on charms; reducing discounts, and shoring up its digital means.
Sales for the third quarter came to 4.07 billion Danish kronor, or $640 million, down 5 percent on an organic basis, but up 1 percent on a like-for-like basis that excluded closed stores. The margin on earnings before tax came to 17.2 percent, compared to 20.2 percent last year.
The company trumpeted that its turnaround efforts are bearing fruit, noting that five out of seven key markets had positive sell-out growth despite a trading environment complicated by COVID-19.
“Something has clearly happened to the brand,” said Lacik, noting progress in a conference call with analysts. He listed the label’s three largest markets — the U.S., the U.K. and Germany — as generating “very solid growth.”
While store traffic has declined considerably — by around 50 percent — there are fewer “casual browsers” and conversion rates are higher, said the executive. Business is shifting to online channels as lockdown restrictions tighten.
Online growth over the quarter jumped 89 percent to reach 21 percent of sales.
China continues to underperform, however, he noted, detailing plans to improve business there, which include setting up a strategic roadmap for the market, and will likely entail a “multiyear journey.”
Also weighing on the quarterly performance, most stores were closed in Latin America and Spain and Canada were severely impacted by the coronavirus crisis, the executive said.
Consumers have tended to flood back to stores as markets reopen, he noted.
“So this whole notion, that retail is dead and everything is going to go online — I don’t subscribe to that, based on the facts that we have experienced so far. But they have to live together in a good, symbiotic way,” he said. The label suffered in Latin America, where the digital channels were not built up enough, he suggested.
In the U.K., where Pandora is most developed online, sales through digital channels come to around 30 percent of revenues.
Pandora’s turnaround against the difficult macroeconomic backdrop for the next year could prove challenging, said RBC Europe in a research note. Analysts cited employment and earnings losses due to the coronavirus crisis that will likely disproportionately affect Pandora’s core customer base.
The brand is working on developing new product pillars while collaborations with “Harry Potter,” “Star Wars” and Millie Bobby Brown are serving to bolster the jeweler’s popularity.
When it comes to advertising spend, Pandora is targeting specific customers using data to bolster growth.
“We’re getting much more targeted in our advertising spend,” said Lacik, who suggested it was building brand momentum to maintain a lead on competitors.
The company said 18 percent of physical stores would be closed temporarily in November.