By Clemens Bomsdorf
COPENHAGEN--Emboldened by a sustained turnaround in its
business, Danish jewelry maker Pandora A/S is placing a bet on
Russia, taking a hit on profits in that market to keep prices low
amid economic uncertainty and a weak ruble.
The company, known for its popular charm bracelets, on Tuesday
reported a 30% rise in first-quarter sales compared with the same
period a year before, and its profit for the period beat analyst
estimates. It boosted its full-year revenue guidance, with optimism
fueled by the strength of its presence in newer markets, including
Russia.
Pandora Chief Executive Allan Leighton said in an interview that
the company is working with its local franchise in Russia "to share
the pain" of a weak ruble. He said most retailers are raising
prices to cope with weak exchange rates, but Pandora is more
interested in gaining market share against the backdrop of
political crisis in Ukraine.
"We want to take advantage of this situation and...not price up,
and therefore go more aggressively for revenue and market share,"
he said. "Growth there is expected to be higher than average."
The outlook follows a host of other multinational
companies--including Danish brewer Carlsberg A/S--blaming poor
earnings and a weak forecast on Russia's uncertainty. French bank
Société Générale SA on Tuesday, however, reflected Mr. Leighton's
optimism, saying Russia will be among the main growth drivers in
retail banking.
Keeping prices low in Russia is costing Pandora, however. Mr.
Leighton said earnings before interest, taxes depreciation and
amortization will take a half-percentage-point hit because of that
price strategy.
The company reported operating earnings in the first quarter of
887 million Danish kroner ($163 million), compared with 599 million
kroner in the same period a year before. Net profit rose 61% to 704
million kroner, beating analyst forecasts.
Shares of Pandora touched an all-time high Tuesday, closing up
8.1% at 392.10 kroner per share in Copenhagen. The company's strong
performance in Europe, with sales increasing 49%, during the first
three months of the year, fueled investor sentiment.
Growth slowed in the U.S., Pandora's biggest market.
The Russian bet follows a period of revival at the Danish
jeweler. Founded in 1982 and rising on the popularity of its charm
bracelets, Pandora faced collapse in 2011 after it misjudged the
market and raised prices too high.
Mr. Leighton took the helm last year, continuing a strategy of
freshening the product line, revamping the retail footprint and
broadening its reach through new markets and online retailing.
The company has recently also launched into France and Italy,
and is working to have more direct sales operations in Asia. It has
also added capacity to handle additional demand. Sales, which rose
to 2.6 billion kroner in the first quarter, are now expected to
grow 5% for the full year.
A cornerstone of the Russia strategy is adding new outlets. In
the first quarter, Pandora opened 12 new so-called concept stores,
bringing its total count to 134, or about 10% of its world-wide
concept stores. Russian stores are run by a franchiser who
purchases Pandora jewelry in euros.
The ruble's decline, falling 8% against the euro since the
beginning of the year, would limit the franchiser's flexibility if
Pandora wasn't willing to share the cost burden with the
franchiser.
Jesper Christensen, an analyst with Denmark's Alm Brand, said
the current plan in Russia likely makes sense when looked at over
long-term. "If you are willing to take a risk, this is a good time
for increasing presence," he said.
Write to Clemens Bomsdorf at clemens.bomsdorf@wsj.com
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