Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

If you thought the Pandora party was over, think again.

The Danish maker of charms, rings and earrings that can sell for less than 100 pounds ($144), reported better-than-expected first-quarter profit, and raised its sales and earnings forecast for the full year. The shares rose 10 percent, the steepest increase for more than a year. It’s all very different from three months ago, when the market took fright at the prospect of fewer store openings and slower growth.

In the current environment, luxury goods groups need affordable products, a great digital experience or a buzz about their brands to win sales from more discerning shoppers. Pandora certainly has the first of those: luxurious treats or gifts that won't break the bank. Think of it as competing with the lower end of Tiffany's trinkets. And it's working on keeping the brand fresh too, expanding categories such as earrings.

They've certainly hit a sweet spot in China, where shoppers are shying away from more overt displays of wealth amid slower economic growth and anti-graft measures.

The trend's taken off elsewhere too. While sales growth in the Americas was held back by comparisons with a very strong period a year ago, revenue in Europe, the Middle East and Africa rose 47 per cent, while Asia Pacific was up 58 percent.

Overall, group revenue was 34 percent higher in the first quarter. That's slower than the 40 percent across the whole of 2015. But it's pretty impressive when compared to sluggish growth in the luxury market. Margins are also stronger, with an Ebitda margin of more than 38 percent expected this year, better than the previous forecast. 

Margin Momentum
Pandora's Ebitda margin has been rising and is forecast to continue to increase this year
Source: Bloomberg
2016 is a forecast

Yet as Bloomberg Intelligence notes, Pandora's success hasn't gone unnoticed by rivals. In particular, Hong Kong-based jewelers are tantalized by the greater demand for more affordable pieces -- and those fat margins.

Pandora's also having to invest heavily in new stores and production facilities to stay ahead, to the tune of 1 billion krone ($150 million) a year, though it can afford to. It's throwing off plenty of cash. Quarterly free cash flow rose 37 percent year-on-year to 1.36 billion krone.

Shares in Pandora were the second-best performer in the Bloomberg Intelligence Luxury Peer Group last year, rising 73 per cent (beaten only by Yoox Net-a-Porter). Since the start of this year, they're up another 9 percent, despite the broader luxury sell-off and that February blip.

Pandora's Stocks
Pandora has regained its luxury sector premium though it's not as pricey as it was
Source: Bloomberg Intelligence

The shares trade at a shade less than 20 times the next 12 months earnings, a 13 per cent premium to the BI luxury group. That's hard to argue with, given the superior positioning and performance. Fashion is notoriously fickle, and in-demand products -- even jewelry -- can quickly lose their luster. For now at least, Pandora's charms have staying power.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net