Pandora Lowers Yearly Outlook Following Rough Q3

Copenhagen, Denmark—Pandora had a rough third quarter and has lowered its financial outlook for the year as the cost of its brand relaunch and weak sales in China weigh heavy on its balance sheet.

Like-for-like sales dipped 10 percent year-over-year, including double-digit declines in key markets such as the U.K. and China. (Like-for-like represents true comparable sales out of stores that have been open for at least a year, excluding currency fluctuations.)

Quarterly revenue totaled 4.42 billion Danish kroner ($656.63 million), falling 11 percent compared with 4.98 billion kroner ($740.85 million) in the third quarter of last year.

“The deliberate actions of the commercial reset hurt our short-term financial performance, but it’s unquestionably the right thing to do,” CEO Alexander Lacik said in an earnings call Tuesday morning.

“We will exit 2019 in much better shape in key areas with less dependence on promotions, more balanced inventory levels, and a more efficient product assortment.”

Like-for-like online sales jumped 12 percent, accounting for 10 percent of total revenue, slightly higher than the 8 percent in the previous third quarter.

Total revenue in the United States fell 14 percent year-over-year while like-for-like sales sank 9 percent. The U.S. remains Pandora’s top market, accounting for 20 percent of global revenue.

Pandora attributed the weak performance in the U.S. to a reduction of promotional activity—it cut back on the number of sale days by 40 percent—but noted that adjusting for the reduction, like-for-like sales were “in line with the overall retail traffic development in the U.S.”

Organic growth— sales into stores (sell-in) plus sales from newly opened stores (also excluding currency fluctuations)— in the U.S. sank 18 percent, which the company said represents a “significant reduction” in inventory among its wholesale partners, which was larger than it expected this quarter.

Pandora described its performance in China as “disappointing,” seeing a 7 percent dip in total revenue and a 16 percent drop in like-for-like sales.

Double-digit growth in sales on Tmall, a popular e-commerce site, was offset by weak sales for Chinese Valentine’s Day this August. The holiday accounts for around 32 percent of its third-quarter revenue, Pandora said.

The company has responded with a “Win-in-China” initiative, an element of its Programme Now turnaround effort, which includes commercial initiatives, like brand positioning, and optimizing its media spend.

Like-for-like sales were down across the board in Pandora’s top seven markets, including a 10 percent dip in the U.K., its second-largest market by revenue share,