Pandora A/S - 2024 Earnings Review

Another Year Surpassing the Expectations Set

After shifting focus in my last article to the pharmaceutical packaging assembly industry, I am now returning to coverage of the annual reporting season. In today’s newsletter, I am sharing a review of Pandora’s 2024 earnings, following their report on Wednesday, February 5, 2024.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

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Executive Summary

  • Strong Revenue Growth: Revenue increased +12.6% YoY, driven by the USA, Germany, and expanding markets, reaching over DKK 10 billion in Rest of Pandora.

  • Record-High Gross Margin: Achieved 79.8% (+120bps YoY) as the transition to store ownership continued, balancing margin gains with higher operating expenses.

  • Product Portfolio Diversification Continues: Charms & Pandora Me saw strong growth, while the Essence collection quickly became a key revenue driver, surpassing the Diamonds collection.

  • Pandora-owned retail sales grew 18% in 2024, reaching DKK 26.1 billion, driven by strong concept store performance and a 21% rise in online sales. Meanwhile, wholesale and third-party distribution declined by 6% to DKK 4.7 billion.

  • Increased Leverage & Buybacks: Net income grew +10.3% YoY, supported by effective stock repurchases, while leverage increased but remained manageable due to high profitability.

  • Optimistic 2025 Outlook: Forecasts 8-9% organic growth, continued price adjustments, and investments in store expansion and manufacturing, despite commodity price headwinds.

Income Statement

Pandora’s performance during 2024 has again exceeded the expectations set by the full year outlook back at the beginning of the year, with a strong revenue growth of +12.6% vs 2023. See figure 1 below.

Figure 1: Pandora’s revenue from 2018. Own elaboration.

Simultaneously, gross margin reached an all time record high of 79.8% (+120bps vs 2023) while the EBIT margin was flat, meeting the full year guidance at 25.2% (+20bps vs 2023) (see figure 2).

Figure 2: Pandora’s margins from 2018. Own elaboration.

Pandora is transitioning from a business model focused on quick expansion through partnerships & franchises (wholesalers and franchises which accounted for 50% of the revenue in 2018) to a business model in which they own their stores.

This business model change implies an increase of the gross margin at the expense of the operating one. However, they have managed to maintain a flat operating margin since 2021.

It is also worth to note that the revenue per piece sold has increased +6.6%, picking up pace compared to previous years. I believe it reflects the price hikes that have been implemented since October 2024.

Figure 3: Pandora’s price per million pieces sold. Own elaboration.

Geographical Revenue Distribution

Geographically, Pandora’s revenue has been fueled by the USA, Germany and Rest of Pandora (which comprises all the other countries where Pandora sells its products).

  1. In the USA the revenue grew +14% vs 2023, reporting +8% LFL revenue growth. It is the largest market of Pandora (30% of the total revenue) and the company estimates it only has a 2% market share.

  2. In Germany sales grew +44.5% to DKK 2.2 billion, establishing itself as the 4th largest market.

  3. Rest of Pandora surpassed DKK 10 billion in sales in 2024, reporting a +17.3% organic growth with +13% LFL sales. The growth in this segment is broad-based, with strong contributions from many markets, mainly Spain, Canada, Mexico and Poland. Indeed, Spain and Mexico have finally surpassed in revenue some of the key markets such as France, China or Australia.

Regarding key markets (excluding the USA and Germany), Pandora's market share in these regions is around 10%, raising concerns about sales stagnation. I believe the 2024 annual report appears to have confirmed these concerns, as the company has struggled to enhance brand desirability, resulting in single-digit LFL sales declines across all these markets.

Figure 4: Pandora’s revenue breakdown by geography from 2018. Own elaboration.

Product Revenue Distribution

The trends observed in previous years continued during 2024.

  • The share of revenue from core products (Charms, Collabs, Pandora Me) declined for the second consecutive year, dropping to just under 74%. I like to see this trend because the business is lowering the dependence of one single product, diversifying the portfolio into a larger variety of collections.

    Charms & Pandora Me reported strong sales growth, at +8.5% and +16.0% vs 2023, respectively, while Collabs sales decreased -4.3% vs 2023 as the company reports that Disney 100 years collection was extremely successful in 2023.

  • Fuel with more segments outgrew the Pandora Core despite revenue from the Signature collection declining for the third consecutive year, it has now fallen to less than half of its 2021 sales.

    Pandora Timeless sales grew by 22% year-over-year, while Diamonds saw a 44% increase compared to 2023, reaching DKK 315 million. Additionally, less than a year after its rollout in multiple markets, Pandora Essence surpassed the Diamonds collection, generating DKK 574 million. This means Pandora successfully achieved 2% of its annual revenue from a new collection in under a year, which is remarkable.

Figure 5: Pandora’s revenue breakdown from 2018. Own elaboration.

Operating Income Metrics

Operating income reached DKK 7974 million (+13.3% vs 2023), slightly outgrowing the revenue growth.

Figure 6: Pandora’s EBIT from 2018. Own elaboration.

Administrative expenses were managed greatly during the year, as they only grew +3.9% YoY, what enabled EBIT growth to slightly outgrow revenue one.

Selling and distribution expenses grew +18% compared to the previous year as Pandora keeps expanding its network of owned stores.This was the third consecutive year they grew faster than revenue.

Finally, marketing expenses exceeded DKK 4.0 billion for the first time, reaching DKK 4.4 billion compared to DKK 3.8 billion the previous year.

Figure 7: Pandora’s operating expenses evolution from 2018. Own elaboration.

Net Income

Interest expenses grew at a faster rate than revenue as Pandora continued to increase its debt usage, which negatively impacted net income. Despite this, net income still rose by 10.3% year-over-year, reaching DKK 5.2 billion.

Figure 8: Pandora’s net income from 2018. Own elaboration.

Balance Sheet

The balance sheet has not changed remarkably year-over-year. See figure 9.

Figure 9: Pandora’s balance sheet from 2018. Own elaboration.

Some relevant financial ratios to evaluate this leveraged financial structure would be:

  • Assets/Equity ratio → 5.0 (2023) vs 4.4 (2024)

  • Net Debt/EBITDA → 1.9 (2023) vs 1.9 (2024)

  • Long-term debt/Net Income → 2.1 (2023) vs 2.2 (2024)

  • Interest coverage → 25.7 (2023) vs 10 (2024)

As you can see, the use of leverage increased again. Although, similarly to last year, the high profitability of the company, reasonably low interest rate of the debt and the long-term maturity of the debt obligations reduce the risk of using so much leverage in my opinion.

Figure 10: Current loans & borrowings of Pandora. Pandora’s 2024 annual report.

Cash Flow Statement

Capital Allocation

Pandora has executed the following actions in connection with allocation of its available capital:

  1. Organic growth: The company has invested DKK 47.2 billion in new Property, Plant and Equipment (PPE). Note that currently, half of the PPE assets are assets under construction. Moreover, working capital management improved, leading to unlocking additional DKK 548 million.

  2. Inorganic growth: Pandora continued acquiring franchisees, spending DKK 537 million, down -24.1% YoY.

  3. Dividend payment: DKK 1.47 billion were paid to shareholders in the form of dividends.

  4. Share buyback: DKK 4.0 billion have been used to repurchase around 3.7 million Pandora shares (5.3% of the shares outstanding) with DKK 400 million left by 31 of December of 2024.

Pandora's current TTM P/E ratio stands at 19.8, translating to an earnings yield of 5.1%. Similarly, its P/FCF ratio is 14.8, equating to a 6.8% free cash flow yield. Given that the company can borrow at lower rates and the 10-year bond yield is around 4.5%, I believe they are making the right decision by aggressively repurchasing their own stock. The higher cost of the debt acquired in 2023 made this strategy less attractive.

With a second factory already under construction and the store network needing to expand in line with brand desirability, there are limited areas for capital allocation beyond marketing, which already accounts for 14-15% of the company’s revenue.

Working Capital

Working capital has improved by efficiently managing inventories, which grew at +6.2%, and using Pandora’s negotiating power with suppliers to increase the days payable. These optimizations led to a CCC reduction of -44.1%, from 75 days in 2023 to 44.4% in 2024.

Figure 11: Pandora’s working capital metrics evolution. Own elaboration.

FCFF Generation

Generated free-cash-flow to the firm (FCFF) surpassed the DKK 7.0 billion, doubling year-over-year. Sales growth, combined with a one-third reduction in CapEx compared to 2023 and efficient working capital management, led to a surge in FCFF in 2024.

Figure 12: Pandora selected per share metrics evolution since 2018. Own elaboration.

Metrics Overview

Capital Efficiency

All ratios show exceptional returns. It is worth highlighting ROE’s remarkable improvement due to Pandora’s use of further leverage.

Figure 13: Pandora capital efficiency ratios. Own elaboration.

Other Metrics

Other relevant metrics I like to review which are:

  • NWC/Revenue (%)

    5.5% reported for the period, an improvement of -320bps.

  • D&A/Revenue (%)

    The ratio didn’t remarkably vary compared to 2023 reported value and it remains at 7.4%.

  • EBIT/EBITDA (%)

    The 2024 figure stood at 77.2%, remaining flat year-over-year and still above 75%, highlighting that the business retains its asset-light nature despite expanding its store network and adding new manufacturing facilities.

  • OCF/EBITDA (%)

    Cash conversion has improved due to the factors already mentioned, reaching 84.4% vs 80.9% reported in 2023.

Management Call & Guidance

In 2024, Pandora's Board of Directors and Executive Management held 0.60% of the company's total share capital. This represents an increase from the 0.50% they held in 2023.

Management Call

European markets remain highly competitive, which impacted the LFL sales decrease in some key markets. Competitors are engaging in promotions while Pandora is avoiding them.

We saw a particularly high promotional environment over the holiday period, likely prompted by the still weak economic backdrop. So in that context, a minus three like for like performance we see as okay. In Italy and France, we met some challenges and a like for like felt minus 10 and minus 14 respectively. Firstly, I want to highlight that our brand metrics remain healthy in both markets. However, we did see quite an intense promotional activity in the markets across the holiday period, and that's not a game we lead in, although we sometimes have to react.

Alexander Lacik, Pandora’s CEO

The CFO emphasized the successful price hikes Pandora has been implementing since October 2024.

As we mentioned back at the third quarter announcement, we are looking at two main buckets of mitigation. That's pricing and its cost. And then on pricing first, we did increase prices by 5% already in October, and we're happy to report that it went well with an elasticity of minus one or better in most places. And based on that, we will take further pricing action this year. And therefore, we can now confirm the first one hundred and forty basis points of mitigation that we mentioned back in the third quarter announcement.

Anders Boyer, CFO of Pandora.

Pandora Essence collection outlook for the coming years:

The way we've spoken about that in the past was to say that within three to five years, this should get to like a 5% share of a business to say something. And that would still hold true in this respect. We've used kind of when we coined that 5%, we were talking about it getting to $1,000,000,000 in revenue size. Of course, since then, our business has grown quite something, so the number would be bigger.

Alexander Lacik, Pandora’s CEO.

Update on the business development on the Eastern markets identified as growth opportunities during CMD 2023.

So we added quite a few. It's more like shopping shops. It's more of a department store type market in Japan with quite some good outcomes last year. Now we are slowing that down a little bit, consolidating that, taking those learnings in Japan. Korea, were we're back on good terms with the distributor there. So I think that business also picked up as we kind of now try to drive it more the way the Pandora business should be run.

And then as it comes to India, we're still in negotiation trying to find a suitable partner for us. There is nothing firm locked. And it's quite important that we land this one as right as we can. So we are not rushing it. It's a big market opportunity, but we need to kind of make sure that the starting point is sensible for us. So we're not stressing the situation in India. So we're still working on finding a good partner for the business.

Alexander Lacik, Pandora’s CEO

2025 Outlook

Outlook for the present year is within the mid.term guidance of the Phoenix strategy. Revenue for full year 2025 is forecasted to come at DKK 34.3 - 34.6 billion, equaling an organic revenue growth is expected to range from 8% to 9%, splitted as:

  • 4-5% of LFL growth.

  • 3% due to network expansion, plus 75-100 net stores & shop-in-shops planned. Impacted by the closure of 50 remarkably less profitable stores in China.

  • 1% due to forward integration.

Operating profit margin is expected to come at 24.5% due to silver prices and other commodities headwinds.

CapEx is expected to reach 7% of sales (+100bps vs 2024), meaning DKK 2.4 billion will be spent in CapEx in 2025. During the call, they mentioned they expect the investments in the new Vietnam manufacturing facility to peak during 2025.

Proposed dividend of 20 DKK per share and a new buyback programme of DKK 4.0 billion.

Conclusion

I believe the business continues developing as expected. Germany’s revenue growth should moderate, while USA sales may lag due to tariffs imposed by Trump’s administration. However, as shown in my initial analysis 1.5 years ago, Pandora’s price point remains the lowest vs competitors, many of whom are also affected by tariffs.

Pandora A/S -Competitors, valuation and risks

Competitors, valuation and risks.

octopusvalueinvest.beehiiv.com/p/pandora-part-2

Capital allocation strategy remains unchanged, but 2024 interest rate reductions enable debt usage for share repurchases. However, if leverage continues increasing beyond healthy metrics, I may reconsider my holding.

For 2025, key areas to monitor include:

  • Revenue per piece KPI, assessing the effectiveness of price increases.

  • EBIT margin, evaluating cost program impact on silver price hikes.

  • Product Portfolio Diversification, ensuring Diamonds & Pandora Essence maintain growth.

  • Key markets LFL sales, after an unstable 2023 and disappointing 2024.

  • China business transformation, it is the part of the original thesis which has developed the most different.

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