Pandora profit warning lifts the lid on investor concerns
There was a thesis written a couple of years ago that asked what would have happened if the Danes had won at the Battle of Clontarf in 1014?
Would Irish history have been a lot different if the Scandinavians had bossed us about for 800 years, rather than the English? It is an argument that could be fought over many pints. But those of us, who are fond of rambling around shopping malls, could offer a modern perspective on this debate.
The Danes have become significant shopping innovators of late. What they have added to the shopping experience includes a chain called Flying Tiger Copenhagen (where customers are tempted repeatedly to pick up things they never knew they wanted), and also the global string of shops that we are putting under the microscope this morning, the jewellery group Pandora.
Listed in Copenhagen, Pandora designs, manufactures and markets more than 600 types of contemporary jewellery - rings, necklaces, charms and the like - made from gold, silver and precious stones. Its products are sold in more than 100 countries (including Ireland) through 7,800 locations including 2,400 company owned stores. It employs 26,000 people worldwide with half located in Thailand, where the company manufactures its jewellery.
Founded 36 years ago by Danish goldsmith Per Enevoldsen and his wife Winnie, the pair found their inspiration in Thailand from where they initially started to import into Europe the stuff they found so attractive. The idea gained wings when the Thai factories were established and the local suburban jewellery shop was transformed into a billion-dollar business. But the group has not been unburdened by the ups and downs of retailing, especially recently.
One of the ups was brought about by the craze for collectable charms a decade ago, which effectively saved the jewellery trade after the financial crises. It also revolutionised Pandora.
The group today still has 75pc of its revenues coming from charms and bracelets. However, fashions change and charm sales have stagnated. The loaded charm bracelet is becoming more minimalist and the items are being worn as pendants.
An added problem for Pandora is the critical US retail market where the big shopping malls are seeing diminishing footfall and competition from the internet.
In 2008, the company was acquired by the Danish private equity fund Axcel and within two years was floated on the Copenhagen Stock Exchange. In the process it became the world's third largest jeweller after Cartier and Tiffany.
Since then its shares have been on a roller-coaster ride. Two years after floatation, it lost more than two-thirds of its market value after a profit warning. Later it became the investors' darling with rapid revenue growth driving its shares 30-fold in the next four years.
However, trouble came again this year when the group shocked its investors with a profit warning.
Managing Pandora has borne comparisons with managing a football club in the Premier League. Four chief executives have been replaced in the first five years after floatation.
The latest, Anders Friis, recently tendered his resignation. During his time, the ex-boss of Scandinavian Tobacco stabilised Pandora's revenues and doubled its profits, but this year's dramatic warning brought simmering investor discontent to the surface and when its shares plunged by a quarter he was forced to retire.
Investors holding Pandora shares have seen them fall 50pc over the year and while revenues at DKK 23bn (€3.1bn) showed double-digit increases, net income at DKK 5.8bn (€783m) remains static.
The problem lies in its profit margin, which fell from 30pc to 25pc. The group is valued by the market at DKK 39bn (€5.3bn), but is it worth that much?
Some analysts are negative, being of the opinion that Pandora's issues are more structural than cyclical and don't see an immediate fix; others disagree and see the share price as a good entry point. But because Brian Boru's lads won in 1014, we don't have to worry about it.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.