CPH:PNDORA - PANDORA A/S

[John Hjorth]

PNDORA 2018Q2 is also out today.

 

Spekulatius,

 

If you study the appendix [in Excel], you'll see that charms [to bracelets] are dwindling, while bracelets are holding up, and growth in new products: rings, earrings & necklaces. It indicates to me, that the company is in the process of doing the right thing. [Going from "One Pillar" company to "Multi Pillar" company, ref. the January 2018 Investor Day Business plan presentation].

 

It'll take a person like you just a few minutes to get a clear & precise overview of what's happening by studying the appendix.

 

2018Q2 looks resonable good to me, the whole operational situation taken into consideration - the pendulum has to me swung too far out here for the share price.

 

Edit:

 

I was personally a bit puzzled about charms dwindling, while bracelets basically are holding up. Think of it this way: Say, your are a female fan of Pandora bling, already owning a bracelet with some charms, and wanting to add some more Pandora stuff. Now you can not only add more charms, you have the option to buy rings, earrings & necklaces, too. So, the new products actually in some way compete with charms.

[Spekulatius]

John, thanks I got that. It seems that the new products can’t offset the decline in Charms ( Pandora’s main / legacy. Product). This is good and bad because Pandora is known for charms and they have to compete with other companies with their newer products.

 

Pandora looks abut like coach a few years ago- a brand with some equity that has to redo its product portfolio. Worked in COH’s case , but wasn’t an easy ride, but that is true for most turnarounds.

[peterHK]

The issue for me here is that directionally, the economics of this business are getting worse.

 

With a turnaround like TRIP, you had the potential for things to get better as growth that was offset by declines started to show through. In any turnaround to really see a valuation lift, in my experience you needed to see some part of the business shine through, not just stabilize.

 

With Pandora, as they're investing more in the physical channel, all I can see is ROIC's getting worse, and part of why this business was so good was ROIC's were fantastic as it was a capital light model. Worse ROIC means a worse multiple. I also see risks to them because they're not playing in the same rarified air as LVMH for instance, where even though there is a black market for knockoffs, there is huge demand for the real deal. Pandora IMO just doesn't have the cache to really stem the grey/black market alternatives in China, which is what everyone is worrying about.

 

So I can see Pandora stabilizing, maybe, but I don't think that's necessarily enough for an investment case here.

[John Hjorth]

Do you guys have a view on whether the company is badly run, or is it just that communication is bad? Is the 2022 strategic plan sensible?

Pete,

 

I don't think the company was badly run, while the stock has now tanked two times, first time in May 2018, in total about 50 percent. It was a communication crisis with analysts and investors loosing trust in the company, with the opinion the downgrade was too long on it's way [somehow, this situation to me has a lot of similarities to what happened with NVO in late 2016]. It's a management judgement call when to downgrade growth. I mean how much information & data do you need to have to be sure [confident] that growth is actually slowing down, when you're studying internal daily, weekly, monthly & quarterly sales data? [Pandora has them all], as to the contrary of just experiencing a short & temporary "blimp"/"dent" in sales? - I certainly don't have the answer.

 

The strategic plan seems sensible to me personally. I actually think it's the only option the company has. But as mentioned by Spekulatius and PeterHK, that does not make it easy to execute.

 

With regard to new management, here is an article about the new COO & CFO [interim new management untill new CEO] from Boersen.dk [here outlined, because it's behind paywall] of yesterday. It does not read bad to me.

 

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This morning I was reading Shareville [an investment board provided by my broker] to get a feeling of the sentiment among the Danish retail investors. Funny place! The bears now call PNDORA a dead cat bounce! [ : - D]

 

Here is one comment of yesterday early from a bull, that makes sense to me:

 

If you look at Pandora’s financial reports you will see that 2016 & 2017 have been the best years for both revenue & earnings by some margin. In the short term the stock market is often a popularity contest. That is why Pandora’s recent price development resembles more a company that is going bankrupt than one that has record earnings. That is why William Demant trades at a P/E of over 40, whilst at current prices Pandora trades at a P/E of 6.8. Which stock do you think is the best risk/reward play here going forwards based on probabilities? At a P/E of 6.8 the risk/reward is now actually starting to look good. The fact management have been a PR disaster has not done the companys reputation any favours and they have lost popularity. When analyst expectations going forward are low [and they are based on a P/E of 6.8] it is also a lot easier to beat those expectations. When that happens, and it surely will at some point, the stock is likely to rally. I imagine value investors will be watching with interest when Pandora report shortly.

[John Hjorth]

Boersen.dk [August 10^th 2018]: Newly appointed CFO: We are in a separation phase with the market.

 

Mr. Boyer started in his new job at Pandora August 1^st, and on his 8^th working day in the new job, directly after finishing the 2018Q2 reporting, he started patching the relationship between the company and the market. Please note the comments about "like to like" figures for sales in the article, compared to the 2018Q2 company announcement. The company has so far refused to release these figures to the market, and has now yielded.

 

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... Now you can not only add more charms, you have the option to buy rings, earrings & necklaces, too. So, the new products actually in some way compete with charms.

 

... It seems that the new products can’t offset the decline in Charms ( Pandora’s main / legacy. Product). This is good and bad because Pandora is known for charms and they have to compete with other companies with their newer products.

 

Pandora looks abut like coach a few years ago- a brand with some equity that has to redo its product portfolio. Worked in COH’s case , but wasn’t an easy ride, but that is true for most turnarounds.

 

Spekulatius,

 

True.

[HalfMeasure]

Anyone following this have an updated view after the most recent results?

[John Hjorth]

HalfMeasure,

 

I'm still following Pandora, but on a much more overall and cursory level than before it got sold.

 

I still think it's a fairly good company, but the doubt about the long term prospects for the company is still bugging for my part. Is it brand erosion and loss [perhaps permanently] of pricing power, that we are observers to right now? Compared to the largest behemoths of peers in the overall space [LVMH, Kering & Richemont] it is in reality tiny, and with no real anchor investor, which makes it vulnerable.

 

The news release of yesterday from the company announcing the "NOW" programme instated by Mr. Boyer reads to me like he is doing the right thing, making internal demands for improved efficiency in all stages of the supply chain, cutting back on "external" expansion [new stores] and focusing on better performance per existing store. The product development strategy appears to me to be unchanged, however Mr. Boyer demands the whole process speeded up materially. He is giving the company a thorough shake-up.

 

I saw a video with an interview with Mr. Boyer yesterday in connection with the company announcement. He appeared tired, verging to being worn out - already. Why hasen't the board solved its task of appointing a new CEO yet? The company is somehow in a managerial vacuum still, now after about three months? -Nobody can in a company of this size fill both CEO and CFO position for a longer period, when the company is under some pressure. -Nothing is "straight down the road" here & now.

 

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For my part, what also happened with Pandora was that I had started studying LVMH back in May this year - much more expensive, but also mentally easier to handle for me, because of built-in diversification. So I somewhat persuaded my brother that Pandora had to go, because my mental load was already absolutely sufficient by my <basket of three major US banks>, NVO & SCO.CPH. In short, it became mentally annoying to have it in an account, despite the position was small, it was not my decision that it was there, and it was occupying a part of my time and focus.

[John Hjorth]

Rear mirror view: Ouch. I'm happy I got my brother out ~ DKK 390 here from late August to mid September this year. Now at ~DKK 260. Just luck.

[John Hjorth]

Bloomberg Markets [February 19^th 2019] : Pandora’s Ex-IR Chief Comes Back to Haunt Company With a ‘Sell’ Rating.

 

This is ridiculous. Perhaps Pandora has a problem, - but I would argue at least SEB has a problem, too.