Pandora Suffers Chinese Revenue Slowdown | News & Analysis

COPENHAGEN, Denmark — Danish charm-bracelet maker Pandora A/S is suffering a surprise slowdown in China, a key growth market, adding to its woes as U.S. sales decline and short-sellers target the stock. The shares fell as much as 14 percent.

Sales growth in China weakened to 16 percent in yuan terms, decelerating from the 62 percent pace of the fourth quarter, the Copenhagen-based company said Tuesday. Pandora also reported a 15 percent decline in profit, which was worse than analysts expected.

“The report is mainly food for Pandora skeptics,” wrote Per Hansen, an investment economist at Nordnet AB.

Pandora bracelet-compatible charms have proliferated across sites such as, Etsy and Walmart, which offers $4.25 Jesus-fish beads and $4.95 poodles. That’s undercutting Pandora’s $55 Mother’s Day hearts and $100 Minnie Mouse charms and giving fuel for short sellers who are betting against the shares. The stock lost more than a quarter of its value last year.

The company is boosting advertising in China and is trying to limit gray-market sales of Pandora products, which have shown “quite a pickup” in the past few months, according to Chief Executive Officer Anders Colding Friis. He said unauthorized sellers are importing Pandora products from markets where they’re cheaper, such as Australia, and then selling them in China.

“We can address the issue, but not remove it completely,” he said in a phone interview. “We have a whole team working on shutting down fake websites, but when we shut down one thing, another one emerges. It’s something we use a lot of energy on.”

The company’s same-store sales fell about 5 percent, excluding e-commerce, executives said on a conference call. Pandora’s U.S. dollar-denominated sales slumped 8 percent. To revive growth in that market, the company plans to introduce a record 650 new products this year. So far it has added 170.

The company warned earlier this year that the cost of new product launches would eat into first-quarter earnings. More than a tenth of Pandora’s shares are shorted, according to Markit Securities. The stock could lose a quarter of its value due to saturated markets, Victoria Hart, a portfolio manager at Pinnacle View, told a short-seller conference in New York earlier this month.

The company plans to increase its store count by 200 this year. Morgan Stanley analyst Henry Yu wrote there’s a risk the new openings and online sales will cannibalize revenue from franchise partners.

Pandora kept its forecast for 2018, predicting sales growth in local currencies of 7 percent to 10 percent and an Ebitda margin of about 35 percent. The second half will be stronger than the first, the company repeated, adding that the second-quarter Ebitda margin will be close to the level of the first quarter.

By Christian Wienberg, with assistance from Anna Edwards and Manus Cranny; editors: Tasneem Hanfi Brögger, Eric Pfanner, Thomas Mulier and John Lauerman.


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