(Bloomberg) --
The chief executive officer of jewelry maker Pandora A/S is trying to reassure investors that better days are around the corner, after a profit warning on Tuesday sent the company's shares plunging as much as 13%.
“Normally I don't focus on what happens with the share price, but in this case I think it's relevant to say why people should consider Pandora as a holding,'' CEO Alexander Lacik said in a phone interview.
Pandora, which makes mid-priced jewelry, delivered its first net loss since its initial public offering almost a decade ago. The company, which is in the middle of an inventory clean-up program that Lacik acknowledged is proving costlier than first assumed, cut its forecast for organic growth and warned investors it will only reach the lower end of its target for operating profit this year.
Read More: Pandora Misses Estimates With Third-Quarter Loss
Lacik said that Pandora, which is based in Copenhagen, has received “strong early positive signals'' from its brand relaunch and that an improvement in so-called like-for-like sales continued into the fourth quarter.
Analysts blamed the restructuring for the bad result, but said it wasn't clear that the company was yet on the right track.
Morgan Stanley said Pandora's outlook is improving, but next year is still a “black box,” with results so far not adequate to suggest brand recovery over the medium term.
“Pandora is in the middle of a turn-around and in such a phase, not all key figures are equally charming,” Per Hansen, an investment economist at Nordnet, said in a note. “Cleaning up costs money.” But it still remains “too early to claim that the turnaround is a success.”
Pandora is trying to revive interest for its charms and bracelets by changing its brand and simplifying its product range. The company said third-quarter organic growth declined 14%, due to a change of payment terms in Italy and the continued clean-up of wholesale inventory through inventory reduction. Pandora also said the positive sales effect from new store openings was lower than expected.
The Profit Warning -
Pandora cut its Ebit-margin guidance to a range of 26-27% from 26-28% previously. It now sees negative organic growth in the range of 7-9%, compared with the 3-7% decline predicted earlier. At the same time, Pandora is stepping up plans to cut costs.
Lacik rejected the notion that Pandora's lowered outlook constitutes a profit warning, because the Ebit margin forecast was still within the previous range, he said. It “would be a bad outcome” if the company's former reputation for serial profit warnings, which cost his predecessor his job, continued under his watch, Lacik said.
But the CEO warned that Pandora's efforts to clean up its business will also impact next year's results. “Into 2020 you should probably see us still in negative like-for-like territory,'' he said.
What Bloomberg Intelligence Says
While not a quick fix, Pandora's rebranding strategy will likely rekindle desirability for the name in 2020, in our view. New CEO Alexander Lacik is so far embracing the plan, with an added emphasis on investment in brand relevance. New designs, collaborations and fewer promotions will aid its jewelry charms offer. A store and product realignment includes a smaller retail footprint and inventory buybacks.
----Deborah Aitken, Senior Analyst for Luxury Goods, HPC & Food, at Bloomberg Intelligence
Even with Tuesday's decline, Lacik is on track to deliver a 15% share-price gain in 2019, which would end two years of stock-market losses for Pandora. The CEO promised that the net loss last quarter wouldn't be repeated.
“It just happened to all pile up in one quarter and the lion's share is related to inventory reduction,'' he said. “So it's entirely a one-off.''
To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net
To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net
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