CONSUMER CYCLICALS: Pandora (PNDORA; Baa2/BBB) 3Q results

Co continues to report firm results cementing itself as an "accessible" jewellery retailer. The margin impact from rising Silver prices (30% of costs) will show up next year where it's guiding to net -100bp fall to 24% EBIT margin - nothing to write home about and that is after a ~30% increase in spot silver. As always BS is squared away. 28s at Z+94 look harsh (trades in line with PVH) but hard to see what the catalyst will be to reverse that. We have also always seen ratings as harsh - it is penalised for the single brand and narrow market (charms and bracelet) focus.

• Q3 revenue at DKK6.1b (€818m) at organic +11% growth consisting of LFL +7% with rest in network expansion.
  • LFL; US (30% of group) +6%, Europe (30%) +5% (on Germany offsetting falls everywhere else), RoW (30%) +14%, Aus. (4%) -2% and China (2%) -33%.
• Gross margin 80.1% (+110bs) on price increases and cost efficiencies offsetting the small fx/commodity headwind (will come next year)
• EBIT margin 16.1% (-40bps)
• Gross/net debt (incl. leases) at DKK15.2/14.5b (€2/1.9b) leaving net leverage at 1.5x.
  • still guiding for that to come down to 1.2x by year-end (seasonal) and will leave it within 0.5-1.5x target range.
• Organic growth guidance narrowed to +11-12% (prev. +9-12%), EBIT margin guidance unch at "around 25%".
  • It is implying LFL growth of 6-7% this year and a Q4 slowdown of 2-5% - latter on macro and tough yoy comps
  • says October trading is seeing MSD LFL growth
  • combined FX+commodities headwind of -40bp on gross margin in 3Q will rise to -110bp in 4Q
• It now has a 360bp headwind to the 2026 26-27% EBIT margin target from the rise in silver prices
  • 140bps covered by 'mitigating actions' leaving 220bp headwind (i.e. its implying "worst-case" of 24.5% in 2026)
  • above is on assumption Silver stays at $33/ounce and it resumes hedging as normal (policy is generally
  • 70%+ hedged over 1yr forward period)

On the +30% rise this year {XAG Curncy}, hedging means margin impact will be delayed by 9-12 months. Based on current 50% hedging on Q1-3 for FY25, it sees a 240bp EBIT margin headwind in FY25. That is before any "mitigation" (cost cutting, price increases etc.) with ~140bp confirmed already in the above 2026 target. A "decent part of that" mitigation is to come by FY25. Net net it sees ~100bp fall in EBIT margin next year (from ~25% this yr).

FY results come 5th Feb