#77 Pandora A/S - Part III

Valuation and Investment case

This is Part III of the Pandora A/S analysis. You can access the previously published Parts I and II here:

Part I: https://krokerequityresearch.substack.com/p/74-pandora-as-part-i

Part II: https://krokerequityresearch.substack.com/p/75-pandora-as-part-ii

1. How does the company allocate capital?

Pandora reinvests in its business through capital expenditures and strategic acquisitions. Its acquisitions primarily focus on franchise store buyouts, allowing the company to expand its owned retail network and maintain full control over brand presentation and customer experience.

Capital expenditures are directed towards retail network expansion, upgrading crafting facilities—including the new state-of-the-art facility in Vietnam—and accelerating digital transformation to enhance operational efficiency and customer engagement.

To maximize shareholder value, Pandora maintains a progressive dividend policy and utilizes excess cash for share repurchases, ensuring consistent capital returns while supporting long-term growth.

2. How much did it spend on Capex?

Pandora's capital expenditures are strategically directed towards expanding its retail network, increasing crafting capacity, advancing digital transformation, and supporting sustainability initiatives. Over the past three years, Pandora has consistently increased its CAPEX, allocating DKK 0.8 billion in 2022 (3.2% of revenue), DKK 1.1 billion in 2023 (4.0% of revenue), and DKK 1.4 billion in 2024 (4.2% of revenue), underscoring its commitment to long-term growth.

A significant portion of CAPEX is dedicated to retail expansion, with Pandora opening 137 new concept stores and 99 shop-in-shops in 2024. Store refurbishment efforts include the rollout of the EVOKE concept, aimed at enhancing store aesthetics and customer experience. Additionally, investments in omnichannel capabilities seek to seamlessly integrate online and offline shopping.

Another key investment area is crafting and supply chain expansion. Pandora is investing USD 150 million (DKK 1.1 billion) in a new state-of-the-art crafting facility in Vietnam, set to boost production capacity by 50% and produce 60 million pieces annually by 2026. Meanwhile, the planned 20-million-piece expansion at its Thailand facility remains on hold but is poised for reactivation if necessary.

In the realm of digital transformation, Pandora is upgrading its e-commerce and IT infrastructure, including ERP system enhancements and improved customer data utilization for personalized experiences. Investments in automation and innovation, such as automated production lines, aim to improve cost efficiency and product quality.

Sustainability remains a fundamental pillar of Pandora’s CAPEX strategy. The company’s crafting facilities operate on 100% renewable electricity, and significant investments are being made to achieve the goal of using 100% recycled silver and gold in production.

Looking ahead to 2025, Pandora plans to allocate around 7% of its revenue—approximately DKK 2.4 billion—to CAPEX, with a continued focus on store expansion, the completion of the Vietnam crafting facility, and further digital transformation. The company's increasing CAPEX as a percentage of revenue reflects its strategic commitment to scaling operations, enhancing efficiency, and fostering sustainable growth.

3. How much has it spent on acquisitions?

Between 2021 and 2024, Pandora pursued a strategic expansion through a series of acquisitions, primarily aimed at increasing its control over retail operations by converting franchise stores into Pandora-owned concept stores. This move was designed to strengthen brand presentation, optimize pricing strategies, and enhance customer experience.

In 2021, Pandora acquired 29 concept stores in the United States, integrating them into its direct-to-consumer model. The total purchase price for these acquisitions amounted to DKK 66 million, with DKK 12 million recorded as goodwill. The newly acquired stores contributed DKK 307 million in revenue and DKK 93 million in net profit.

Building on this strategy, 2022 saw a series of significant transactions. The largest of these was the Ben Bridge acquisition, where Pandora took over 37 stores across the US and Canada for DKK 291 million, adding DKK 445 million to revenue and DKK 186 million to net profit. Another major deal was the Panbor acquisition, which included 13 concept stores in Las Vegas, acquired for DKK 166 million, contributing DKK 121 million to revenue and DKK 55 million to net profit. Additionally, Pandora acquired its Portuguese distributor, including 25 concept stores and 9 shop-in-shops, for DKK 99 million, integrating these stores into its corporate structure. The year also saw the takeover of 5 additional stores in the US and Italy, bringing the total 2022 investment in acquisitions to DKK 577 million, with DKK 364 million recorded as goodwill. Collectively, these acquisitions added DKK 693 million in revenue and DKK 305 million in net profit.

The expansion continued in 2023, with the acquisition of 54 concept stores, including 35 in the US, 14 in Colombia, and 5 in Canada. These acquisitions, completed at a total cost of DKK 356 million, resulted in DKK 143 million in goodwill and contributed DKK 339 million to revenue and DKK 136 million to net profit.

In 2024, Pandora maintained its strategy by acquiring 36 more concept stores, with key additions in the US (12), Italy (4), Canada (15), and Brazil (5). These stores were purchased for DKK 183 million, with DKK 98 million in goodwill recorded. Their integration is expected to bring DKK 124 million in revenue and DKK 28 million in net profit.

Overall, Pandora's acquisitions from 2021 to 2024 reflect a focused effort to reduce reliance on third-party distributors and expand its direct-to-consumer presence globally. By converting franchise operations into corporate-owned stores, Pandora has strengthened its brand positioning, operational efficiency, and profitability, aligning with its long-term strategic vision of becoming the most desirable jewellery brand in the accessible luxury segment.

4. Does it pay dividends?

Pandora has a strong track record of paying dividends. Until 2019, the company distributed dividends on a quarterly basis but has since shifted its focus toward share buybacks. Pandora now distributes a annual dividend.

5. What is the dividend policy?

As of March 9, 2025, Pandora A/S maintains a progressive dividend policy, aiming for stable to increasing dividends per share over time.

6. What is the latest dividend payment per share?

For the fiscal year 2024, the company has proposed a dividend of DKK 20 per share, reflecting an 11.1% increase from the previous year's DKK 18 per share. ​

7. What is the current and average dividend yield?

The latest dividend yield is approximately 1.9%, while the five-year average stands at around 2.61%.

8. What is the payout ratio?

I prefer to measure the payout ratio based on free cash flow. While the figures fluctuate significantly, the dividend payout has stabilized between 20% and 30%, with excess cash being allocated to share repurchases.

9. Does the company grows its dividend per share?

As of today, Pandora A/S follows a progressive dividend po9. Is the company increasing its dividend per share?licy, aiming for stable or increasing dividends per share over time. However, as the figures above indicate, meaningful dividend growth has yet to materialize. With the updated policy, this could change in the near future, potentially leading to stronger dividend growth.

10. Does it buy back shares?

Pandora has a strong and consistent share buyback program, which is a key part of its capital allocation strategy. The program is designed to return excess capital to shareholders while maintaining a sustainable financial position.

Pandora follows a combined capital return strategy involving both dividends and buybacks. In 2024, total shareholder distributions, including dividends and buybacks, amounted to DKK 5.5 billion. For 2025, Pandora plans to return DKK 5.6 billion in total, including DKK 1.6 billion in dividends and DKK 4.0 billion in share repurchases. This means that more than 100% of net profits are often returned to shareholders, reflecting the company’s strong free cash flow.

11. Has the company bought back shares in the past?

Pandora has a history of regularly repurchasing shares.

12. Is there an active program at the moment?

In 2024, Pandora repurchased DKK 4.0 billion worth of shares, and the 2025 buyback program is also set at DKK 4.0 billion, scheduled to commence on February 6, 2025, and conclude no later than January 30, 2026. Buybacks are expected to continue as a core component of Pandora’s capital return policy.

13. How has the number of shares outstanding changed?

Share buybacks reduce the number of outstanding shares, leading to higher earnings per share (EPS), increased shareholder ownership percentages, and potential stock price appreciation. Pandora’s EPS grew by 17% in 2024, partly due to buybacks. Since 2012, the total number of outstanding shares has decreased by 38%.

14. What are the major risks?

Pandora faces a variety of risks that could impact its business performance, but the company actively manages these challenges through a structured risk management approach.

One of the key risks is brand and collection relevance, as maintaining brand desirability and innovating new collections are crucial for sustained growth. A failure to do so, along with the threat of counterfeit products, could lead to declining consumer engagement and reduced revenue. To mitigate this, Pandora invests heavily in media campaigns, data analytics, product innovation, and brand protection initiatives.

Another major risk is macroeconomic conditions, with persistent inflation, high interest rates, and decreasing consumer purchasing power posing significant challenges. Reduced disposable income can negatively affect revenue, so Pandora focuses on strict cost control, commercial adjustments such as emphasizing lower price-point products, and diversifying revenue streams to manage these economic fluctuations.

Commodity price fluctuations and foreign exchange volatility also present financial risks, particularly with rising silver and gold prices, as well as currency fluctuations in key markets such as the USD, GBP, AUD, MXN, and THB. Pandora actively hedges about 70% of its silver and gold purchases for the next 12 months and conducts regular pricing reviews to maintain profitability while implementing cost-control measures.

On the operational side, supply chain disruptions due to geopolitical conflicts, extreme weather, pandemics, or cyberattacks remain a significant risk. Given that all crafting facilities are currently located in Thailand, any major disruption could severely impact production and distribution. To mitigate this, Pandora has implemented loss prevention strategies, robust business continuity planning, insurance coverage, and a geographic diversification strategy, including a new crafting facility in Vietnam.

Regulatory changes, particularly in taxation and tariffs, could increase production costs and reduce profitability. Pandora continuously monitors international tax and tariff developments while exploring alternative crafting and logistics strategies to maintain cost efficiency and avoid supply chain bottlenecks.

In summary, Pandora recognizes and actively mitigates these risks through a combination of financial hedging, supply chain diversification, technological investments, and sustainability measures. Despite ongoing macroeconomic uncertainties and evolving regulatory challenges, the company remains well-positioned to navigate these complexities and sustain its growth trajectory.

15. What are the latest results?

The most recently published results were for FY 2024, which were also analyzed in detail in Part I of our report. Here are some highlights:

Revenue and Profitability:

• Total Revenue: Achieved DKK 31.68 billion, marking a 13% increase from DKK 28.14 billion in 2023.

• Organic Growth: Recorded at 13%, surpassing the company's guidance of 11-12%.

• Gross Margin: Improved by 120 basis points to 79.8%, indicating enhanced cost management and pricing strategies.

• Operating Profit (EBIT): Increased by 13% to DKK 8.0 billion, maintaining a solid EBIT margin of 25.2%.

• Net Income: Rose to DKK 5.23 billion from DKK 4.74 billion in the previous year.

• Earnings Per Share (EPS): Grew by 17% to DKK 64.8, up from DKK 55.5 in 2023.

Regional Performance:

• United States: Comparable sales increased by 9% in Q4 2024, reflecting strong consumer demand.

• Europe: Sales remained flat in Q4 2024, with declines in France and Italy due to economic challenges and intense promotional environments.

Cash Flow and Shareholder Returns:

• Free Cash Flow: Generated DKK 5.1 billion, an increase of DKK 0.8 billion compared to the previous year.

• Dividend: Proposed DKK 20 per share, reflecting the company's strong financial position.

• Share Buyback: Announced a new program worth up to DKK 4.0 billion, to be completed by January 30, 2026.

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The last part of the analysis is for paid subscribers only and consists of the following information:

• 16. What is the current valuation?

• 17. What is speaking for an investment?

• 18. Does it have a moat?

• 19. Has there been any insider activity?

• 20. Has there been a capital markets day or similar event recently?

• 21. Conclusion