Pandora Q3 2020: faces big risks from new lockdowns but turnaround is well underway

On Nov 3rd, Pandora reported solid Q3 results. New lockdowns represent a risk, especially taking into account the importance of seasonal business within Christmas time.

This is not investment advice. Please read the disclaimer. I might own discussed stock(s) currently or at a later time. I might transact in any securities at any time.

Q4 is hugely important including Christmas season, usually respronsible a good chunk of annual profits. New lockdowns around the world could be a big hindrance for Q4 sales. Though, much of the in-store revenue might shift online, but still. Online sales could ultimately run into operational constraints (i.e. shipping capacity not keeping up before Christmas).

Q4 margins will be depressed. To execute on its Q4 strategies, Pandora will incur additional expenses, i.e. for pop-up stores (to minimize queues infront of stores). Sales staff is payed even if stores are closed, which I believe is not only morally the right move but shoukld pay of in economic terms with strongly motivated sales staff remembering that.

A solid financial position allows Pandora to spend on TV campaigns and further pursue its turnaround strategy (re)building its brand momentum. The company currently profits from ‘lower media cost per unit‘ due to less overall demand media spend. Many of its key markets performed strongly (less so in China).

The performance in Q3 2020 is a solid indication of the continued brand turnaround with five out of the seven key markets generating positive sell-out growth despite COVID-19.

Q3 2020, report

Pandora is still not winning in China which is particularly annoying since China is currently probably the country impactet least by the pandemic. Means may seem drastic from a western perspective but they are effective. If and when they get China right, this is another strong mid-term lever.

extraction from Q3 2020 presentation

A setback for its store redesign push was communicated, somehow contradicting earlier positive results. But I like its data-driven approach (and honesty) to stop the new concept rollout if neccessary and to take time to optimize the future retail store design.

A new team has been created to drive Pandora’s future retail store design concept. The initial new store design was appreciated by consumers but the overall sales performance was not in line with expectations. The renewed focus will be to optimise and redesign the in-store consumer journey.

Q3 2020, report

Strong cash generation in Q3 resulted in reduced NIBD/adj Ebitda 1.1x. An increase in inventory was partly offset by continued high trade payables.

Pandora’s strategy after programm NOW will probably be unveiled in first half of 2021 at a capital markets day.

Currently I will not update my valuation of PNDORA since it pretty much hinges on the pandemic and political actions against it. But overall, I feel Pandora is very well positioned to weather the current storm and to come out stronger (vs competition), i.e. with a much better online proposition. The turnaround seems to progress well, despite corona. So I hold to my position (which I reduced in July due to the pandemic risk factor).


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