E-commerce Rollout After Italy And Canada Success Will Expand Digital Engagement In 2025

Key Takeaways

• Phoenix strategy emphasizes brand elevation, e-commerce enhancements, sustainability, and store expansions to drive organic growth, revenue, and brand value.
  
• Effective cost management through price adjustments and efficiencies maintains strong EBIT margins despite commodity price pressures.
  
• Rising competitive promotions, commodity costs, and tough market conditions in Europe and China pose significant risks to Pandora's growth and profitability.

Catalysts

Engages in the designing, manufacturing, and marketing of jewelry products.

• Pandora's Phoenix strategy is set to drive organic growth of 7% to 8% in 2025, with focus on brand elevation and expanding the jewelry category. This is expected to enhance revenue and like-for-like growth.
  
• Ongoing investments in a new e-commerce platform are being rolled out following successful tests in Italy and Canada, enhancing digital engagement and potentially increasing revenue from online sales.
  
• Pandora's commitment to sustainability, including using recycled materials and renewable energy, positions the brand favorably in consumer perception, which can enhance brand value and potentially support higher net margins over time.
  
• Expanding the physical store network with a target of 75 to 100 new openings in 2025 supports revenue growth, with new stores providing a rapid ramp-up in sales and strong EBIT margins.
  
• Strategic cost management in response to commodity price fluctuations, combined with price increases and operational efficiencies, aims to maintain solid EBIT margins around 24.5% despite external cost headwinds, safeguarding earnings.

Pandora Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pandora's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.5% today to 18.4% in 3 years time.
• Analysts expect earnings to reach DKK 7.5 billion (and earnings per share of DKK 97.43) by about March 2028, up from DKK 5.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as DKK8.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, down from 16.6x today. This future PE is lower than the current PE for the GB Luxury industry at 19.3x.
• Analysts expect the number of shares outstanding to decline by 3.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.38%, as per the Simply Wall St company report.

Pandora Future Earnings Per Share Growth

Risks

• Increased promotional behavior from competitors could pressure Pandora to participate in promotions, potentially impacting revenue and net margins if not managed carefully.
  
• Rising commodity prices, particularly in silver, present significant external cost headwinds that could compress gross margins despite price increases intended to offset these costs.
  
• Planned store closures in China and challenges in penetrating the market pose a risk to revenue growth, as well as operational costs, reducing the expected contribution from network expansion.
  
• Tough retail conditions in key European markets, such as France and Italy, could stifle like-for-like growth and necessitate greater investment than anticipated, impacting profitability and earnings.
  
• Macroeconomic uncertainties and weak consumer environments in various regions could adversely affect sales growth projections, thus impacting overall revenue and earnings targets.

Valuation

• The analysts have a consensus price target of DKK1400.714 for Pandora based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK1700.0, and the most bearish reporting a price target of just DKK1010.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK40.5 billion, earnings will come to DKK7.5 billion, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 6.4%.
• Given the current share price of DKK1107.0, the analyst price target of DKK1400.71 is 21.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.