Pandora Earnings: Growth Accelerates Across Regions; Shares Still Attractive

We maintain our fair value estimate of DKK 980 for narrow-moat Pandora PNDORA as the firm reported solid third-quarter results and increased full-year revenue guidance. We intend to reflect upgraded guidance in our model, but it won’t have a meaningful impact on our fair value estimate. We believe that despite a strong run over the past year (85%) shares have upside potential, trading in 4-star territory.

Organic growth in the third quarter accelerated from 3% in the first half to 11%, driven by like-for-like sales growth of 9%. Network expansion added 4%. Acceleration was broad-based across geographies and collections (only Australia and the U.K. weakened while the rest of Pandora, which includes Spain and South America, continued to outperform with 22% growth). Importantly, the U.S. market, which accounts for around 30% of revenue, delivered 5% like-for-like growth (negative 5% in the first half) and performance in China stabilized (negative 12% in the first half).

Core charm collections delivered 7% growth while other collections under the “fuel with more” segment delivered 14% growth. This is a solid performance, including 84% growth for Pandora’s laboratory-grown diamonds and strong sales of rings to younger consumers in its Timeless collection supports its ambition to be a full-range jewelry brand.

For the full year, the firm expects organic growth of 5%-6% (2%-5% previously) due to higher like-for-like growth assumptions, but is keeping margin guidance stable at around 25%. For the third quarter, the operating margin was down 210 basis points, partially hit by the phasing of costs, despite the gross margin of 79%, a 230-basis-point increase from 2022. Management decided to boost investments on the back of stronger-than-expected growth, resulting in no upgrade for the margin. Like-for-like sales in the fourth quarter so far, are strong at high single digits, but the holiday season could be more competitive given more sluggish growth for Pandora’s jewelry peers.