Pandora Warns of Profitability Squeeze as Sales Growth Slows

  • Charm maker’s margins getting hit by ‘double whammy’: analyst
  • Pandora shares decline as much as 6.2% in Copenhagen

Pandora A/S shares fell the most in almost six months after the Danish charm-bracelet maker warned that sales growth is slowing even as higher gold and silver prices make jewelry production more expensive.

Revenue will rise less than 10 percent in the first quarter after increasing 21 percent in 2016, and margins will be significantly lower in the first half, Pandora said in a statement Tuesday. The shares fell as much as 6.2 percent in Copenhagen, the steepest intraday decline since August.

“It’s a double whammy,” said Frans Hoyer, an analyst at Jyske Bank, by phone. “That top-line shortfall doesn’t look good.”

Pandora’s profitability is getting squeezed as it plans to spend more on marketing in 2017, according to the analyst. Gold is trading near a three-month high on demand for assets that are seen as a haven amid political uncertainty surrounding President Donald Trump and upcoming French elections. The jeweler’s revenue fell in the Americas in the fourth quarter as Pandora closed about 700 sales locations in the U.S. and Canada.

The company, which rebounded from a profit-forecast miss in the second quarter, is expanding manufacturing operations, aiming to double production to more than 200 million pieces a year by the end of 2019. Pandora is also focusing more on its own store concept, planning to add 275 sites this year.

Pandora also announced plans for bonus dividends and a share buyback of as much as 1.6 billion Danish kroner ($230 million). The company is tripling its dividend payment for the year as it pays an ordinary dividend of 9 kroner a share plus three bonus ones of the same amount.

Other highlights included:

  • Ebitda margin forecast at ~38% of sales in 2017, down from 39.1% in 2016
  • Full-year sales forecast to increase 13%-18% to DKK23b-24b
  • First-quarter revenue growth will decelerate to less than 10% amid a difficult comparison with a strong period last year
  • Capex to be about 5% of revenue
  • Currencies to boost 2017 revenue about 1 percentage point, reduce Ebitda margin by about 1 percentage point
  • Pandora plans >275 new stores this year, with 50% in EMEA, 25% in Americas, 25% in Asia Pacific
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