Pandora Plunges as Carnegie Survey Reveals `Clear Red Flag'

  • Recommendation cut is first by Carnegie in over half a decade
  • Dealer survey shows Pandora may have had a weak start to year

Shares in Pandora A/S lost more than a tenth of their value as a survey indicated the Danish jewelry maker may have struggled to generate revenue growth through its dealers last quarter.

Carnegie, which for more than five years has advised clients to buy the stock, cut its recommendation to hold, and slashed its price target to 850 kroner from 1,200 kroner. Analyst Lars Topholm cited a first-quarter dealer survey indicating “significant deterioration in like-for-like momentum in almost all markets surveyed.”

The company’s shares fell more than 14 percent on Tuesday and traded at 654.50 kroner as of 3:43 p.m. in Copenhagen.

“Something seems to have gone wrong in the first quarter,” Topholm said in a note obtained by Bloomberg. “Growth may have fallen victim to greater cannibalization from store expansion and e-commerce, which is to be expected, but this has been less of a problem in the past.”

Whether the results represent a blip or a more structural threat, Topholm said “we believe the outcome of the dealer survey is a clear red flag.”

Pandora’s head of communications, Kristian Lysgaard, said the company couldn’t comment on “rumors” in the market, citing its silent period ahead of first-quarter results due to be published on May 9.

“When it comes to our e-commerce we see this as a great supplement to our physical stores,” he said in an emailed response. “We are able to meet our consumers in a branded environment where they want it, either online or at a physical concept store. In 2016, around 5 percent of revenue came from our eStores.”

Carnegie’s survey of seven countries in which Pandora operates showed negative readings for European markets, including Italy, France and the U.K., while the U.S. was stable. Australia was the only market in which more dealers indicated sales were up than down, Topholm said.

The analyst cut his earnings-per-share estimates by 4 percent for this year, 6 percent for 2018 and 7 percent for 2019. He also said there’s a “fear” that results in the first quarter “may fall short of consensus expectations.”

“If all is fine, Pandora is a bargain at current prices,” Topholm said. “But if a structural change is unfolding, the downside risk is also large as Pandora could face earnings downgrades and further multiple contractions at the same time.”

In an interview in March, Chief Financial Officer Peter Vekslund said the company was looking into buying out more distributors to improve profitability. But since then, analysts have voiced skepticism. Nykredit Markets said in March that investors were worried about the first-quarter report, after Pandora “flagged” that the numbers will be “weak.”

The company has seen its share price fall about 29 percent this year, compared with a 5.6 percent increase in Copenhagen’s benchmark index of stocks.

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