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Danish jewelry maker Pandora A/S (NASDAQOTH: PANDY) has had an awful year. The stock is down about 50% so far in 2018 thanks to the company missing quarterly earnings forecasts and its CEO resigning earlier this summer.
The company is still without a CEO, and it reported yet another earnings miss on Nov. 6, along with another lowering of guidance. Pandora now guides for just 2% to 4% growth for 2018, lower than the previous guidance of 4% to 7%, which itself was down from January's guidance of 7% to 10%. The company did maintain its EBITDA (earnings before interest, taxes, depreciation, and amortization) margin estimate at 32%, which had been lowered from 35% earlier this year.
Let's take a look at what's going on with the company.
Image source: Pandora A/S.
Revenue wasn't as bad as it looked
While the headline revenue numbers looked truly terrible for Pandora, the underlying numbers were actually better than advertised. For the quarter, revenue declined an ugly 3%, with same-store sales also down by 3%. EBITDA margin was 29%. These are terrible-looking numbers compared to 2017, when revenue increased 15%, along with 37.3% EBITDA margin for the full year.
However, last year, the company shipped its Christmas collection to franchisees early in the third quarter, whereas this year the collection will be shipped in the fourth quarter. That affected overall revenue by about 175 million Danish kroner. (The exchange rate on Nov. 21 is $1 = 6.55 Danish kroners.) Adding that back to the third quarter's revenue would yield a very small decline in revenue of less than 1%. That's certainly not great, but is meaningfully better than the headline figure.
Another mild positive: Across certain markets, "like-for-like" same-store sales (a better proxy for end customer demand) showed shoots of growth. Namely, comps were up 4% in the U.S., up 3% in Germany, and up 1% in China, which is a large and important growth market and had been negative earlier in the year.
On the downside, the mature U.K, and Italian markets, which are currently larger than China, declined 5% and 7%, respectively.
Cutting costs NOW
Investors may be giving Pandora time to work with its new strategy, called "Programme NOW," which entails cost-cutting, increased efficiency of working capital, and most importantly, cutting back on new store openings.
That last element -- cutting back on new store openings -- seems to have struck a positive chord with investors. While Pandora will open 250 new stores this year, management announced it would be cutting back the 2022 target from another 750 to roughly another 400, with a focus on underpenetrated markets such as China and India.