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Pandora (PANDORA2 28s; Baa2, BBB; S) {PNDORA DC Equity} 1Q Results

CONSUMER CYCLICALS
Pandora with firm results - not much value against BBB retailers on the 28s, but for those looking to switch out Kering there's still 30bp pickup. Worth noting Pandora will direct the cash flows to shareholders - not the BS. We don't expect any rating changes this year. PVH 27/new 29s (Baa3, BBB- Double Pos) still the most attractive carry in IG retailers (ex. distressed VFC) & we liked the new 29s on where it came (-13bps in since) - earnings end of this month - we will touch on it before then.

  • Strong beats; DKK6.8b (~€900m) in revenue (c6.6b) at organic +18%yoy (c12%) driven by beats & double -digit organic growth in US (30% of sales), Germany (7%) & France (4%). UK (13% of sales) at 2% growth was in line. China at -27% was a strong miss but is small 2% of sales for the co.
  • Beats continued on margins - gross at 79.4% (c78.9%), EBITDA at 30.3% (c28.3%) & operating at 22% (c20%). Free cash flow including lease payments was neg. 187m up from -614m last year and is line with Q1 seasonality.
  • Capex was in line with FY guidance for 6-7% of sales at DK400m. Annual dividend of DKK1.5b paid and buyback of 1b done in 1Q. Payout ratio for Pandora has run north of 100% in recent years - its guiding to total 5.5b in returns this FY (i.e. another 3b in buybacks) which should use up FCF & some (c5.1b).
  • Leverage little changed yoy at 1.3x. Net debt at DKK12.6b (€1.4b) includes 4b in lease liabilities and 900m in cash. Guidance unch for leverage to at 1.2x to end the year (tad higher than historical), with seasonal peak expected in Q3. Consensus for FY24 EBITDA is DKK10b+ (€1.3b).
  • FY24 organic growth bumped from 6-9% to 8-10% at EBIT margin of 25% (margin unch yoy). Net of FX impacts guidance for revenue is DKK30.5-31.1b.
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