PANDORA Reported Very Strong Q4 Results

Pandora reported very strong Q4 results, surprising on the upside on all fronts. Q4 sales were a 11% beat vs. our forecasts, up 35% ex-FX and +40% reported to DKK 3,961m, with strong growth in all regions including the US achieving their best performance ever reported. FY15 outlook also looked particularly encouraging in our view, notably in the context of PANDORA’s conservative guiding, as the Company expects sales above DKK14bn (+17% YoY), 300 concept store openings, and EBITDA margin at c. 37% (+100bps YoY). Finally PANDORA announced very rich cash returns, including a 38% DPS increase and a new buyback program of DKK3.9bn, or c. 5.5% of current market cap. Pandora still a good stock for JP Morgan Cazenove researches.

PANDORA experienced its best performance ever in the US in Q4 14. The soft reporting from Tiffany and Signet (that also noted that PANDORA did not perform up to their expectations during the holiday period) had castshadows and raised concerns about PANDORA’s performance in the US. PANDORA though surprised on the upside, reporting 20% growth ex-FX in Q4 in the US (incl. LFL at +5%), the best growth ever recorded in the region. Management noted that such outperformance had been driven by several factors including store network quality, improving trading in the Northeast, strong Disney performance, sustained marketing and solid momentum in the West Coast.

FY15 guidance is encouraging, and yet we find it conservative, as usual. Today PANDORA has provided its outlook for FY15, pointing to Sales above DKK14bn, 300 concept store openings (i.e. c. 20% addition to the current network), and EBITDA margin at c. 37%, broadly in line with consensus and just shy of our expectations. This guidance though implies +17% reported growth and roughly +13% ex-FX (PANDORA assumes 3- 5% FX tailwind in FY15), which, given the store roll-out plan for this year (we estimate c. 12% space growth contribution), leads to an expected flat LFL for FY15, well below the FY14 run-rate.

China looks set to be another promising region for PANDORA’s growth story. PANDORA today announced the taking over of franchise stores in China, which comes in conjunction with an increased focus on store roll-out and significant marketing investments in the region. PANDORA currently have 29 concept stores in China, and are looking to open 15-20 concept stores in H215, with management commenting on the call that a “couple of hundred plus stores” is perhaps a “good benchmark to think about over the next few years”. Tone on the call sounded very positive about the future of China, particularly on the fundamentally good reception of the product in the region, leading us to think that although the growth is likely to be somewhat gradual, China is likely to become a significant contributor to PANDORA in the longer-term, said JP Morgan.