Tuesday, 5 May 2020

Pandora highlights ongoing strength, but makes a Q1 loss as March proves tough




Danish jewelry giant Pandora released its Q1 results on Tuesday and also said that the company is “in a strong financial position to sustain a prolonged Covid-19 crisis”.

But that strength couldn't make up for what must have been a disappointing quarter for the company after it had appeared to be on track to recover from a period of falling sales before being derailed by the coronavirus crisis.

Yet the company stayed upbeat and said it saw “positive organic growth in early 2020”, and while March was clearly a tough month, it enjoyed triple-digit online growth during April.

Revenue still fell in Q1, however. In fact, it dropped 13% to DKK4.172 billion (£488m/€559m) from DKK4.8 billion a year earlier. The firm said “brand momentum” had driven its positive organic growth in January and February, but March sent it into reverse and meant its EBIT margin of 15.3% was down sharply from the year ago margin of 22.5%.

The company had been working on its transformation programme in order to return to strong growth after a period of falling sales. But its positive performance in the first two months couldn't rescue it from a 17% fall in what it calls “sell-out” sales this time (or 11% on a like-for-like basis), while organic sales fell 14%.

And while earnings before interest and taxes (EBIT) and excluding restructuring costs were DKK638 million, higher than the DKK622 million expected by analysts, it still made a net loss. This totalled DKK24 million from a profit of DKK797 million in the same period a year earlier.

The sales performance for the first two months of the year had earlier been tracking at a growth rate of 1%, driven by key markets including the US, UK, Italy, France and Germany. And that “indicated an effective turnaround before the Covid-19 escalation”.

But with 90% of its stores eventually closing, the company faced issues in all of its global markets. Covid-19 hurt it initially in China, and spread to the rest of the world during March, with the last week of that month seeing sell-out growth falling 70%. But the figure has since improved to a fall of 55% by the end of April "based on strong online performance and a gradual re-opening of physical stores, so far mainly in Germany”.

President and CEO Alexander Lacik said: “We are focused on managing the current crisis. Among our 28,000 employees, we have only had a few reported cases of Covid-19. The group is now preparing for the recovery after the pandemic, and our strong performance in January and February makes us confident in the underlying brand momentum. We have implemented cost and cash initiatives to ensure that we have the necessary financial strength for a strong commercial comeback when demand starts normalising.”

In fact, the company has put in place a number of immediate cost and cash initiatives, although its turnaround plan is continuing with a “focus on leveraging the brand momentum when demand returns”.

It has stress-tested the business, taking a worst-case scenario view in which all physical stores are temporarily closed throughout 2020, and has enough funding to get it through such a period. It has additional committed loan facilities of DKK3 billion via its main lenders and intends to sell 8 million treasury shares in an accelerated book-building.

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