A Pandora store in Paris, France. Picture: REUTERS / BENÔIT TESSIER
A Pandora store in Paris, France. Picture: REUTERS / BENÔIT TESSIER

Copenhagen — Attempts to turn around struggling jewellery maker Pandora by new CEO Alexander Lacik are being hampered by subdued consumer spending in key markets such as the US and mainland China, and by political unrest in Hong Kong.

The company’s shares fell more than 17% on Tuesday after it warned of a steeper-than-expected fall in sales this year, just months after a high-profile relaunch of the brand.

Pandora’s sales increased more than 10-fold in the decade to 2017 as it found a niche between cheaper accessories in stores like H&M and more expensive jewellery on offer from Tiffany & Co. But more recently a lack of innovation and overstretching itself at the top and bottom end of the market kept shoppers and investors at bay.

Lacik, who describes himself on LinkedIn as a “turnaround architect”, took the reins at Pandora in April. He told investors on a call that the company’s turnaround plan is on track.

“We have indeed executed exactly as communicated and we have seen the first early results,” he said, pointing to an increasing number of shoppers in the company’s stores and improved, though still negative, like-for-like growth in October. However, he cautioned that it is still early days: “I think this will be a bumpy ride for sure.”

The firm, which sold 280,000 pieces of jewellery per day in 2018, hired Lacik, previously CEO of British childcare products maker Britax, after former CEO Anders Colding Friis was ousted last year after issuing several profit warnings.

Heavily promoted

In a bid to win back customers, the world’s largest jewellery maker by production capacity has doubled down on efforts to refresh its image, but costs related to the revamp, including reduction of inventories and promotions, weighed on the quarter. The number of promotional days was reduced by more than 40% in the third quarter, which had a negative impact on like-for-like sales, which dropped 10% overall.

“One important aspect of this brand relaunch has been to reduce the reliance on promotions,” Lacik told Reuters.

By late afternoon in Copenhagen Pandora’s shares were down 17.25% at 287 krone (R634) each, a far cry from a 2016 peak of more than 1,000 krone.

Citi analysts said in a note that Pandora missed expectations on its top line and earnings before interest and tax. With full-year 2019 guidance now lowered, “the market will question the timing and success of the brand turnaround plan, unlikely to be sooner than expected”.

A weaker economy pressured consumer spending in some of Pandora’s biggest markets, including Britain and mainland China, while Hong Kong sales halved, disrupted by weeks of anti-government protests. In contrast, companies such as German fashion house Hugo Boss and Gucci owner Kering have said that a boost in mainland China sales offset the impact of the unrest in Hong Kong.

Pandora now sees sales falling 7%-9% this year, down from a previous forecast of a 3%-7% drop. It expects the operating profit margin, excluding restructuring costs, to be 26%-27%, down from 26%-28% previously. Third-quarter earnings before interest and tax, and excluding restructuring costs, fell 25% to 891-million krone, below the 986-million krone expected by analysts in a company-compiled poll.

Speculation about consolidation in the jewellery sector was stirred last week after LVMH offered to buy Tiffany & Co, known for its engagement rings and ties to Hollywood glamour, with the owner of Louis Vuitton and Bulgari seeking to expand in one of the fastest-growing parts of the luxury goods market.