Another quarter, another profit warning from Pandora AS. The Danish manufacturer of affordable bling jewelry slashed its full-year sales forecast on Tuesday and abandoned its long-term sales target. Far from gold.
Unfortunately, investors have become used to the steady stream of bad news from the company. And the warning from Tuesday was accompanied by a revision of the business. This suggests that the strong revenue growth that Pandora has seen a few years ago will not come back so soon.
In an effort to resolve its issues, the company will accelerate the number of new openings. It will open 250 outlets this year, but its current plan for 1,000 net new deals between 2018 and 2022 will be curtailed. The closures will also increase as the jeweler focuses on the development of his online business. Pandora will also limit its strategy of buying in franchised stores, which has previously boosted sales.
Although these movements are reasonable, they mean slower growth. This explains the decision to achieve an annual revenue growth of 7 to 10 percent without currency fluctuations. Pandora will be fundamentally different from other retailers in the past. Instead, the new approach will depend on increasing the turnover of businesses that have been open for at least a year.
Pandora can do this to some degree by improving its marketing and initiating initiatives such as personalized jewelry. The deeper problem, however, is that Pandora's charm, the tiny emblems attached to bracelets and accounting for more than half of its sales, have gone out of fashion.
It will take some time to build enough earrings and necklaces to catch the slack – if that ever will replace the waning enthusiasm. Growth will be difficult to achieve.
Cost reductions will help. The company will announce an increased savings target in February. He may also want to reduce his share repurchase program or throw him overboard to ensure that he has the financial strength to restructure the business.
The stock has lost almost half of its value this year, trading at seven times the expected gain. That's about one-third of the rating rated by the Bloomberg Intelligence Index of top luxury companies. The search for a Chief Executive Officer would help after Anders Colding Friis leaves in August. However, it is hard to see what a new leader could do to challenge the fickle nature of fashion.
The one wildcard is a potential acquisition in interest of interest in the company. Even with a huge offer premium, in 2016 investors would not approach the $ 1,000 mark ($ 153). Despite the prospect of an immediate recovery, this may be the most appealing option currently.
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Andrea Felsted is a columnist for Bloomberg Opinion for the consumer and retail industries. Previously she worked at the Financial Times.
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