COPENHAGEN • Shares in the world’s biggest jewellery maker, Pandora A/S, bounced back from their worst slump in eight weeks after the company said price cuts in China will have no major impact on operating margins and only a limited effect on revenue.
After initially plunging 7.3% in Copenhagen trading, Pandora shares were down less than 2% by around 11:30am local time yesterday.
In an emailed response to Bloomberg, Pandora said the price cuts in China “will not have any significant impact on our Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin”.
“We expect limited impact on revenue as the lower prices are expected to be offset by higher volumes — including a decrease in grey market trading benefitting our own channels,” Pandora said. “In the longer run, it is of course our view that the lower prices will benefit our business in China and the company as a whole.”
In a stock exchange statement earlier yesterday, Pandora said it will cut retail prices on most products in China by about 15% to combat grey market trade and in an effort to “balance the retail price difference in the mainland Chinese market and other markets”.
Analysts at Berenberg pointed out that it “has long been speculated” that Pandora would do something along these lines. Given the dynamic in that market, “the price cut in China was necessary and we view today’s move as a step in the right direction as it ensures that brand equity is protected and hopefully the Chinese business will eventually pick up”, the analysts said.
The company reported sales growth in the world’s second biggest economy of just 16% (in yuan terms) in the first quarter (1Q), down from 62% in the 4Q.