Welcome to Crazy Pandora
It was just 10 months ago that the Danish jewelry company, Pandora, was the darling of the jewelry industry and the investment world. The company, primarily known as the maker of extremely popular charms with broad appeal, issued an IPO that raised $2.1 billion in October 2010. Its subsequent earnings reports documented astonishing growth.
The company released its second quarter financial report two weeks early with less than expected growth as well as declines in major markets. It also drastically downgraded its sales and profits targets for 2011 and reported a drastic decline in July revenues. In addition, the company announced the sudden resignation of its CEO Mikkel Vendelin Olesen. The result was that its stock fell about 70 percent Tuesday to a record low of 39.30 kroner ($7.55), according to published reports. The company blamed rising commodity prices, which forced it to raise its prices, but also put the fault on “inadequate” execution.
“Although our price increases combined with some destocking are significant contributors to our slowdown in sales and profitability, our own inadequate operational sales, and marketing execution is as big a factor,” said Allan Leighton, Pandora board chairman.
Pandora, founded in 1982, makes a full line of jewelry and watches but is known for its individually crafted charm designs made of silver, gold, gemstones and glass. They are highly prized by their customers who collect them to make their own jewelry creations, primarily bracelets. Charms are mostly popular with younger jewelry lovers because they allow customers to create multiple styles at a relatively low cost. But these creations, designed at the company’s headquarters in Denmark and manufactured in cost-friendly Thailand, appeal to all ages and are popular throughout the world. Its products are currently available in 55 countries on six continents through more than 10,000 points of sale, including 500 of its own branded stores.
Retailers loved them as they brought much needed business to their stores during the economic downturn and when the company chose to go public, investors swooned, creating one of the largest IPOs in 2010. A month later, the company said third quarter sales doubled and profits tripled.
However, on Tuesday, Pandora changed its 2011 outlook from expecting a revenue growth of no less than 30 percent to 0. It also noted that revenues fell 30 percent in July.
On the same day, Pandora reported that second quarter revenue increased 3.6 percent to 1.4 billion Danish kroner ($265.3 million). In the Americas, revenue increased 16.2 percent. This sounds good but sales in the U.S., its largest market, fell by 0.7 percent for the period. The U.S. accounted for 39.2 percent of all sales during the period.
In Europe it was even worse as sales declined 11.9 percent. The U.K. and Germany, its two largest markets in Europe, sales fell 13.1 percent and 20.1 percent, respectively. The U.K. accounted for 11.9 percent of all sales, down from 14.2 percent in the second quarter of 2010. Germany accounted for 8.5 percent of total group sales, down from 11.1 percent in the second quarter of 2010.
The U.K. trade publication, Professional Jeweller, reported Wednesday that retailers, on a private online forum for those who sell Pandora products, criticized the company for its strong-arm tactics, such as forcing them to buy products and Pandora branded furnishings (for in-store boutiques) they did not want, failing to supply the products they did order and charging U.K. retailers 35 percent more for products than in other countries, including the U.S. and Denmark.
The Asia-Pacific region increased 7.6 percent for the period. However, in Australia (another large market for Pandora), revenue was down 14.6 percent.
The company implemented price increases in all markets to offset rising commodity prices during the first quarter, except in Australia where it increased prices in April 2011. Price increases in Germany were implemented at the end of first quarter. “Our price increases introduced during H1 2011 have had a significant negative impact on our volumes in the quarter,” the company said.
The company also announced a review of its practices.
“The re-set of our affordable luxury positioning, improved operational execution and restoring growth trajectory is now the focus of our company,” Pandora said. “This re-set will take up to 18 months to see through. In addition, the company has instigated a strategic review to test or confirm certain elements of the company strategy.”
Eighteen months seems like an eternity for a company that has experienced such growth and decline in such a short time.