By Stine Jacobsen
COPENHAGEN (Reuters) – Pandora’s <PNDORA.CO> business in China has ground to a halt, the jewelry maker and retailer said on Tuesday, as a new flu-like virus forced the company to shut around a third of its stores in one of its top markets and shoppers stay at home.
The warning is one of the starkest yet from a business operating in China, where more than 400 people have died from the coronavirus and thousands more have been infected.
China is the world’s biggest luxury goods market and Pandora makes about 10% of annual sales from Hong Kong, China and its tourists.
“As I sit here and watch the Chinese business, it is in a standstill mode, I mean there’s pennies being sold,” Chief Executive Alexander Lacik told Reuters, describing an “unprecedented” drop in business.
Pandora has closed 70 of its 240 shops in China on the order of the government and at its remaining ones, mostly in shopping malls, customer traffic is “next to none”, Lacik said.
The crisis is a threat to the Danish company’s efforts to revive its fortunes.
In the decade to 2017, Pandora’s sales increased more than 10-fold as it found a niche between cheaper accessories in stores such as H&M <HMb.ST> and more expensive jewelry on offer from the likes of Tiffany & Co. <TIF.N>.
But more recently a lack of innovation and overstretching itself at the top and bottom of the market have kept both shoppers and investors at bay.
Pandora expects organic sales – excluding acquisitions – to fall by between 3% and 6% this year, an improvement from last year’s drop of 8%. It also sees an operating profit margin, excluding restructuring costs, of above 23%, versus 26.8% in 2019.
But these forecasts do not account for any impact from the coronavirus in China, where Pandora has been struggling anyway to attract shoppers to its trademark charm bracelets.
“As we speak to Chinese consumers they’re not equally clear on what Pandora’s point of difference is … The brand has not been well-positioned and I also think it has been underinvested,” Lacik said.
Lacik, who describes himself on LinkedIn as a “turnaround architect” and took the reins in April, said the company’s turnaround plan had resulted in more customers globally in the fourth quarter.
Key markets like Italy, France and Germany had performed particularly well. But it was too early to say if the company could return to sales growth in 2021, he said.
Fourth-quarter earnings before interest tax (EBIT) and excluding restructuring costs were 2.81 billion Danish crowns ($416 million), above the 2.75 billion crowns average forecast in a poll of 16 analysts compiled by Pandora.
Pandora shares fell around 3% in early trading.
(Reporting by Stine Jacobsen; Editing by Christian Schmollinger, editing by Louise Heavens and Mark Potter)