China's anti-corruption drive has hit demand for Swiss watches costing thousands of pounds and other high-end jewelry -- people aren't spending so much on lavish gifts for officials.
But Chinese shopping for themselves (and people elsewhere) just can't get enough of Pandora's much more affordable charms, rings and earrings that sell for less than 100 pounds ($144) each.
On Tuesday, however, Pandora said it expected to expand more slowly this year, with sales forecast to rise 14 percent to 19 billion kroner ($2.9 billion), far less than the 40 percent gain it reported last year. The main culprit is fewer store openings. Pandora's planning about 250 new locations this year, compared with just under 400 in 2015. This year 60 percent of the openings will be in Europe, with 20 percent each for Asia and the Americas.
Investors were not impressed by the slower growth. The shares fell as much as 11 percent, and are in the midst of their biggest losing streak since 2012.
But they should think twice before meting out too much punishment. After such stellar growth, it was inevitable that Pandora's expansion would slow. And it's worth noting that it has a track record of beating expectations, opening about 100 more stores than it originally planned in 2015. Cash flow remains strong, at 2.5 billion kroner, and Pandora also announced a new share buyback of up to 4 billion kroner.
It's investing heavily, though. As it seeks to stay ahead of its competitors, who are also tantalized by the prospect of selling cheaper jewelry, Pandora is also making its products more complex. But setting more stones in its charms and rings adds cost. It's also spending on new production facilities in northern Thailand, to help it meet demand in China and elsewhere. Add in IT investment, and overall, capital expenditure will stay high at 1 billion kroner this year, about the same as last year and what's planned for next year .
The company was the second-best performer in Bloomberg Intelligence's luxury goods competitive peer group last year -- its 73 percent share rise in 2015 massively outperformed the peer group, which fell 14 percent in dollar terms. Its forward price-earnings ratio of 16 is now just a point ahead of the broader index; last year the gap was as much as 8 points.
A premium is justified, but nothing like the outsized gap from 2015. Pandora's charmed spot in the affordable luxury market puts it in a position to overcome the risks to meeting its sales forecast from the worsening global environment.
While some of the luster may have come off, Pandora still sparkles.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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