This story was published a bit over a year ago, in November 2013.
"Pandora Wants Stable Growth"
Danish jewelry company has bounced back after growing too quickly in the past
http://www.wsj.com/articles/
SB10001424052702303914304579193871492922970
GLOSTRUP, DenmarkDanish jewelry maker
Pandora A/S's new chief executive has launched a feasibility study to consider building a new factory amid rapidly rising sales, a move that represents a stark reversal for a company that just two years ago had too much stock after demand for its iconic charm bracelets bottomed out.
In an interview Tuesday, Allan Leighton said there is a stable of new initiatives to pursue, including an online sales operation in the U.S. or having more dedicated sales operations in China or Japan, but "we wouldn't have capacity." Since he took Pandora's helm earlier this year, Mr. Leighton has been working to add to an existing turnaround built on the additional hundreds of new stores and a fresher product line.
Pandora reported a significant improvement in third-quarter earnings Tuesday, with sales increasing 26% and net profit growing 61% over the same period in 2012. The company has a reputation as a cheaper alternative to luxury rivals
Tiffany & Co. and Cartier, and is now gearing up for what Mr. Leighton expects to be "a phase of controlled growth."
The 31-year-old company has allocated 400 million Danish kroner ($72 million) in 2013 to capital spendingroughly 50% more than budgeted in recent yearswith a big chunk set aside to help address capacity constraints. A jeweler committed to manufacturing its own goods, Pandora opened a six-story factory in Gemopolis, Thailand, in 2005.
Mr. Leighton didn't provide details on location or timing of a new factory, but said as the company launches each new store "we have to make the product to supply it." Nearly 200 new "concept" stores will have opened in 2013. Pandora initiated a night shift in the third quarter to help keep shelves stocked.
The outlook was much dimmer two years ago, when cost-conscious customers appeared to be tiring of Pandora's line of charms and bracelets. Faced with a mountain of unsold stock, production was pared back and ambitious growth forecasts were abandoned. This led to the share price losing nearly two-thirds of its value in one day as investors feared the best days had come and gone.
Mr. Leighton said a combination of snazzy new collections and products, such as the "Essence" line and silver bangle, and a cadre of new stores in Italy, France and Russia has put the company back on track.
Pandora has worked to cultivate a more loyal fan base. For instance, its so-called club customer program, now numbering three million, is growing by 200,000 each quarter. Pandora co-branded
Royal Caribbean cruises were recently created so the like-minded loyalists can vacation and shop together.
Pandora has also closed many of its underperforming outlets, committing to eventually having a more comprehensive approach to online shopping.
Tiffany and Cartier, for instance, have well-established Internet shopping operations. Pandora customers, meanwhile, have complained that new products aren't always easy to obtain because the Danish firm has only a limited e-commerce presence, allowing for online purchases in only a handful of markets, such as the U.K.
Mr. Leighton said the company's management is working to keep growth at a "modest" pace to keep the company's shareholders happy, and won't rush into an aggressive online push until more capacity is available.
When Pandora's business collapsed in 2011, many analysts said the company's once-breakneck pace of revenue growth was unsustainable. Now, the company is looking for a more balanced approach, gradually ramping up operations in mature economies, such as Australia, while keeping prices stable.
Sydbank analyst Soren Lontoft said that sales in "mature markets grew again [and] Pandora seems to succeed with making loyal customers come back." While growth in the U.S.Pandora's biggest and most profitable marketis moderating, Mr. Lontoft said the trend isn't alarming.
Pandora recorded net profit of 612 million kroner in the third quarter on revenue of 2.26 billion kroner, compared with net profit of 380 million kroner on revenue of 1.79 billion kroner over the same period in 2012.
Shares of Pandora traded at 245 kroner Tuesday, up 562% from where the stock traded at the end of the third quarter two years ago. Shares are now priced roughly in line with where they traded in October of 2010, when Pandora went public.
On Tuesday, the stock was down nearly 5%, with investors anticipating that Axcela Danish private-equity firm that invested in Pandora before the IPOwill soon begin selling off some of its stake after changing the structure of its holdings in September.