Morningstar | Geographical expansion and product diversification will drive Pandora's revenue growth.
Pandora is a global branded jeweller and the leader in the charm bracelet category. We believe the firm benefits from its global brand recognition and vast distribution channels, moderately strong pricing power enabled by the charms' low perceived value and recurring purchases, customer loyalty (around 70% of business from repeat buying and over 60% of revenue from gifting, which tends to be more brand-loyal), and cost advantage from manufacturing and purchasing scale.Although Pandora has grown in a relatively benign competitive environment--the global jewellery industry is largely fragmented and unbranded--we don’t think its current advantages are impossible to replicate over the next 10 years; thus, we don’t believe it has a moat. Moreover, while the appeal of charm bracelets has been long-lived so far, it could feasibly fade through changing consumer tastes; we attribute the longevity to Pandora’s marketing of charms as a method of personal expression rather than a fashion accessory, aimed at less fashion-forward customers who are less fickle in their preferences. Charm bracelets (74% of the company’s revenue) remain a relatively small niche in the wristwear category and broader jewellery industry.We believe the company is well placed to grow in adjacent jewellery categories by enlarging its product assortment and boosting category marketing spending. We expect the adjacent jewellery categories to grow at a double-digit rate over the next five years, although success is not guaranteed and customer loyalty may be lower. We forecast charms and bracelets to be largely flat, driven by growth in new markets and offset by declines in the more mature ones. We see Pandora’s shift from wholesale to retail distribution as a moat-strengthening action, as it should provide better control over pricing, considering wholesale channel weakening in some markets through intensifying online competition (for example, in the United States). However, this would come at a cost of rising operating leverage, with some pressure on margins and returns on invested capital; according to the company, own retail is slightly EBITDA margin-dilutive.Pandora designs, manufactures and markets jewelry made from genuine metals. Co. designs, produces and sells charms, bracelets, rings, necklaces, pendants and earrings. Co.'s products are made from gold, silver, gemstones, cultured pearls and stones and other jewelry materials. Co.'s jewelry is sold in more than 90 countries on six continents through approximately 9,900 points of sale, including more than 1,400 concept stores. Co.'s products are sold globally through such points of sale as concept stores, silver stores, gold stores, shop-in-shops and white stores.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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