How did Pandora fare in Q1 with Corona hitting Physical Stores Hardest?

Pandora A/S (PNDORA DC) released its Interim Financial Report Q1 2020 today (May 5, 2020). January and February showed very encouraging sales trends, but then Corona hit the physical store networks. How did Pandora cope with the lockdowns?

This is not investment advice. Please read the disclaimer.

I do currently own shares (economic interest) in mentioned companies.

Pandoras Q1 2020 materials can be found online: announcement, interim financial report, presentation. Shares are trading higher after earnings release, earnings call. Q1 highlights are:

Short Term Issues

Pandora is hit hard by corona, based on its vast physical store network, even when online stores soften the blow. Manufacturing is running smoothly so far and inventories are healthy. Most important, Pandora is in a strong financial position, enabling Pandora to prepare for a rebound.

Online Store

Manufacturing

Financial Position

Preparations

Long Term Implications

Organic sales growth for the first two months (+1%) is encouraging and is supporting my notion that Pandoras turnaround will be successful in the long run.

Several strategic plans seem to be going forward as planned. Understandably, the testing of new physical store designs takes longer.

  • concept stores decreased by -24 during Q1 2020 (vs Q4 2019)
  • adjusted gross margin was 77.4% compared with 75.9% in Q1 2019
  • Total operating expenses (excluding restructuring costs) increased +1% YoY, driven by increased media spend and commercial initiatives conducted in the early part of the quarter.

The below closing remarks sum up Pandoras situation quite well. The financial position is strengthened.

Valuation Update

My last Pandora valuation after the trading update in March 2020 indicated a fair value per share of DKK 702 ($ 103, € 94); see all my Pandora posts. This valuation should not change dramatically, based on:

  • financial position is strengthened and survival secured
    • sale of 8m treasury shares will be dilutive (c. 8.7%), though.
    • kind of an insurance to survive short term and being able to capture the long term earnings stream
  • a successful turnaround seems more likely now, in ther longer term
    • will be key to carry brand and sales momentum in the post-corona time, thus targeted marketing spend

With updating some valuation inputs, I get a fair value per share of DKK 644 (€ 86, $ 93), and I believe my valuation to be conservative.

A second wave of severe global lockdowns in Q4 is a key risk for Pandora since the last quarter (christmas) provides high revenues and profits. Other risks are manufacturing or supply chain disruptions.

Outlook

I will update my valuation and calculate a new fair value per share once more when some uncertainty is (hopefully) removed in the coming months. Currently I do not plan to buy more shares, since (a) I already own a large chunk of Pandora (relative to my portfolio) and (b) my recently started concept site quality assessment indicates an overall low quality score (in the preliminary result section).

Hope you enjoyed my post!
Keep safe and stay healthy!
Best, s4v

What is your opinion on Pandora, currently?

Update

Pandoras shares soared higher on Thursday (+10% 8.5%). The timing ob my last Pandora purchase (below) seems to be a better timing than my recent purchase of SES. But its never about buying at the bottom, since it does not work (see quotes). Regarding the timing of Pandora purchases:

  • I bought Pandora four times before (5 times in total).

Reductions in short positions were reported.

23 thoughts on “How did Pandora fare in Q1 with Corona hitting Physical Stores Hardest?

  1. Hi Searching, great you wrote this, I will read it when I have a moment.(my first thought after hovering over the results was dislike). Im sure you saw that €1m buys from the CEO and CFO (I think) at dkk200 and dkk186. My god not bad purchase prices ah?, virus crisis and then boom fishing stocks at those levels. We should have waited for these guys to buy and then do likewise…

    Liked by 1 person

  2. Hi Jose, thanks. I liked it overall, since the turnaround seemed to gain traction (Jan, Feb) and the long term success seems more likely now.
    I’d like to refer you to my Quotes page, for many useful quotes regarding bottom fishing 😉

    Like

  3. Hi Searching,
    So the good news are turnaround was beggining to work out(modestly tho), and online sales are gaining share in the sales mix?. Not bad I suppose. Just that all this race to rise capital took me aback, as well as resorting to the sale of 8m treasury shares. I guess it was done already as the share volume one day in May shows. At around dkk250, equals dkk2B, for 2 quarters burning cash in the worst case scenario. Not bad. Purchase average price of those shares is another topic tho, lol

    I dont think they will have problems stemming from manufacturing, Thailand seems to have the Virus situation well under control.

    A second wave in Q4 would really be a mess yeah

    Good thing is that price has gone up a bit since all this. And insiders buying at dkk200. So maybe we are not in such a bad spot after all!.
    Chart would look nice again if price approached the dkk350-360 heights. We´ll see.

    Thing is…, never to buy again anything at 10-11-12 times FCF unless very high quality. Leave the order at 14-15% yield based on a 60% FCF when company seems to be healthy at most. Thats what the insiders did basically…

    Liked by 1 person

  4. The share offering was beginning of May, ~1.8nb DKK (8M x 226). Additionally they secured a new credit line, so liquidity is sufficient (as written in the article)

    Like

  5. Hi Jose.
    Your learning ‘never to buy… ‘ rests from the recent developments of pandora during Corona or is it based on other learnings with a more general character?

    Like

  6. Ive been in market seriously for 10 years now. I dumped technical analysis first after not bearing fruits, then came to fundamental analysis up until quite recently, few years back. If youve been in market for some time, at least from my pov, the problem is not so much the knowledge but the psychological aspect/greed/lack of discipline-patience, whatever you call it: using too much leverage, overweighting too much one given stock..etc, not to speak of keeping always a percentage of portfolio in cash for rare massive selloffs like the one recently. So in a few words the management aspect of it all. If you are discipline-patience enough to do that what I said, no doubt not the brightest of ideas and something many have come up with long before, to leave the orders up in very good/high quality names being conservative with numbers, maybe passive investing or whatever you call it, its one of the best strategies in the long run imo. Had done that with Pandora, no doubt would have not purchased at dkk200-186 like the CEOs, rather somewhere between dkk280-350 but not dkk640 like my first original purchase.

    Liked by 1 person

  7. Yes, Pandoras recent performance is very nice and in this case I like it very much since I considered to have a full position after my last buy into the company at March 18 (1 day after two insiders bought pretty much at the bottom).
    (I just started to write a post about Pandoras recent strong performance and if I might want to trim my position…)

    Liked by 1 person

  8. Did you make that purchase on March 18th because you learned about the insiders purchase, it triggered you to go ahead finally?(do you have alerts about it, dont know if thats even possible), or you didnt know about the insiders purchase at the moment?.

    do you know about TSE Trinseo?(USA stock). Looks very attractive. Going up today, wanted to buy like 15% lower… oh well maybe the train left… Just recently got back ability to purchase again thanks to my portfolio recovery, among them Pandora. As most mega blue chips at very attractive prices skyrocketed from bottoms and none left near prices 2 months back… Im late to the party. I suppose some falls may come ahead after such recovery from bottoms tho.

    Liked by 1 person

  9. And whatever may happen if theres a new outbreak of virus after summer. Now everyone seems to have forgotten about the virus.

    Liked by 1 person

  10. I actually described that as a key risk for Pandora, since revenues are very strong in Q4 and the majority of profits is usually made in the last quarter, based on seasonality (xmas)..

    Liked by 1 person

  11. How did you become aware of this insider´s purchases this time?, checking pandora investors website?.

    Are you currently following any stock to pull the trigger for it?.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s