What’s inside Pandora’s box? | FT Alphaville

What’s inside Pandora’s box?

Not all of the world’s evils but from an investor perspective something just as bad — a seriously huge profit warning.

A warning so large that’s it’s knocked almost 70 per cent from the share price of the eponymous charm bracelet maker.

Pandora AS press release:

The Board of Directors has decided to update financial expectations for 2011 based on a review of financial results for Q2 2011 and preliminary revenue for July 2011, given a sharp revenue deterioration in late Q2 and a worsening of trading conditions in July, where revenue declined by approximately 30% year-on-year.

Based on this knowledge, our guidance has changed from expecting a revenue growth of no less than 30% for 2011 and an EBITDA margin of minimum 40% to revenue in 2011 in line with 2010 and EBITDA margins in the low thirties for 2011. We expect CAPEX to amount to approximately DKK 230 million and the effective tax rate to be approximately 18%.

So from 30 per cent growth to no growth after a disastrous decision to increase prices. And lower margins to boot.

The cumulative effect of our recent global price increases of approximately 15% on top of price increases already implemented in USA and UK in 2010 has had a negative volume impact on our sales-out in an environment where consumers are becoming increasingly value conscious.


Was the price rise really to blame here or have Pandora’s charms simply lost their er charm?

Whatever the reason, today’s news has cost the CEO, Mikkel Vendelin Olesen, his job and the company is warning investors it will take 18-months to re-set its affordable luxury positioning (whatever that means).

Now, it’s worth at this juncture recalling the price Pandora floated at in October 2010 — DKr210 for a market cap of DKr27bn — those who managed the IPO —Goldman Sachs, JPMorgan, Morgan Stanley and Nordea Bank — and the sellers — private equity group Axcel, the founding Enevoldsen family and Pandora’s managers.

All the ingredients, then, for an IPO flop. A private equity seller, an insider seller and the involvement of Goldman Sachs.

That said, the float price was only 13 times prospective earnings for a company that appeared to be growing quickly and Axcel and Pandora’s founders, who still hold two-thirds of the company’s stock, did agree to a year long lock up.

Anyway, after sifting through the wreckage of this latest IPO car crash, analysts are lopping 40-50 per cent off forecasts and have no idea if the turnaround plan being put together by chairman Allan Leighton can instil any confidence whatsoever.


We make it that updated guidance implies an EPS cut of over 40% in 2011E and we would expect a dramatic sell off in the shares as credibility and visibility is now completely shot. We will be reviewing our forecasts and recommendation in due course.

SEB Enskilda:

The company will now have to present a credible turnaround plan in order to reestablish just the slightest amount of confidence. The supervisory board has appointed board member Marcello Bottoli (previously Samsonite) as the temporary CEO until a new permanent CEO is recruited. Judging from the new guidance, we will need to cut our forecasts this year by 40-50%.


Or as Jefferies puts it:

Investors may regret ever opening this box of disappointments.

Related links:
Pandora Drops as Charm Maker Cuts Forecast – Bloomberg
Life on Pandora is challenging – FT Alphaville