Pandora: Crafting Jewels and Profits

Pandora is the world’s largest jewelry brand, known for its vertically integrated business model, global retail presence, and strong brand recognition. With a foundation built on charms and bracelets, the company is expanding into new jewelry categories, personalization, and lab-grown diamonds to position itself as a full jewelry brand. Its highly profitable company-owned stores, strategic expansion, and investment in digital and in-store experiences further support its long-term growth ambitions. The question remains: Should this jewelry powerhouse have a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Pandora. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of Pandora either. Thus, I have no personal stake in Pandora. If you want to purchase shares (or fractional shares) of Pandora, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.

The Business

Pandora, founded in 1982 in Copenhagen, Denmark, is the world’s largest jewelry brand, selling 107 million pieces in 2024 - equivalent to three pieces every second. The company operates a vertically integrated business model, covering design, manufacturing, and direct-to-consumer sales, ensuring full control over quality, cost efficiency, and brand consistency. Pandora’s extensive retail footprint includes 2.788 concept stores and 6.785 points of sale across more than 100 countries, with digital channels further strengthening its global reach. The company generates 74% of its revenue from its Core segment, which includes Pandora Moments, Pandora ME, and collaboration collections, providing stable growth. The remaining 26% comes from Fuel With More, consisting of Pandora Timeless, Pandora Signature, Pandora Lab-Grown Diamonds, and the newly launched Pandora Essence collection. This segment has expanded from 22% to 26% of revenue in 2024, reflecting strong momentum. Pandora’s largest market is the United States, accounting for 31% of revenue, followed by the United Kingdom at 12%, Italy at 8%, and Germany at 7%. Pandora benefits from strong brand leadership and consumer loyalty. It is the most searched jewelry brand on Google, holding 39% of category searches—three times more than the next competitor. The brand’s unique positioning as “jewelry with meaning” fosters emotional engagement and repeat purchases. Recognized by Interbrand as one of the world’s most valuable brands, Pandora continues to gain market share in a fragmented industry where global brands are outpacing the overall market. The company’s scale and vertical integration provide a significant moat. State-of-the-art crafting facilities allow for cost efficiencies and high production volumes while maintaining consistent quality. Its asset-light business model leverages in-house manufacturing and an extensive distribution network, ensuring high margins and strong financial performance. With around 80% gross margins, Pandora demonstrates strong pricing power and operational efficiency. Sustainability is a core part of Pandora’s strategy. The company now crafts all jewelry with 100% recycled silver and gold and operates entirely on renewable electricity. It has been recognized among the 100 most sustainable companies.

Management

Alexander Lacik, appointed as CEO of Pandora in April 2019, brings over 30 years of leadership experience from global consumer goods companies.  Prior to joining Pandora, he served as CEO at Britax Ltd., a manufacturer of childcare products. His career includes significant roles at Reckitt Benckiser, where he led the North American division from 2013 to 2017, and at Procter & Gamble, where he held various sales and marketing positions. Alexander Lacik holds a Bachelor’s degree in Business Administration from Växjö University, Sweden, and has worked across the US, Europe, and Scandinavia, leading strategic international expansions and delivering strong revenue gains. At Pandora, Alexander Lacik was initially tasked with transforming the company through the "Programme NOW" strategy, focusing on enhancing eCommerce and adopting a data-driven approach. This initiative laid the foundation for the current "Phoenix" strategy, which leverages Pandora's existing infrastructure to pursue untapped growth opportunities and increase market share across geographies and jewelry categories. Under Alexander Lacik's leadership, Pandora has achieved notable organic growth and strengthened its brand presence. In recognition of his effective leadership, he was voted CEO of the Year in Denmark in 2024. Reflecting on the principles guiding successful brands, Alexander Lacik has stated: "I've always said that good brands that remain relevant do two things well. First of all, they're consistent through time. And secondly, they invest through cycles. That's exactly what we have been and will continue to be doing." Alexander Lacik's extensive experience and strategic vision have been instrumental in Pandora's ongoing success, and his leadership continues to inspire confidence in the company's future.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Pandora has delivered impressive numbers over the past decade, with ROIC never falling below 20%. Excluding 2020, which was impacted by the pandemic, ROIC has consistently remained above 30%. While the company hasn't reached the exceptional levels seen from 2015 to 2017, when ROIC exceeded 50%, this isn't a concern. The past five years have been shaped by the pandemic and broader macroeconomic conditions, yet Pandora has continued to generate strong returns on capital. Management has emphasized the company’s ability to maintain very high returns, a testament to its efficient business model. I share this view and expect Pandora to sustain a high ROIC going forward.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. The results are somewhat mixed, with Pandora experiencing both increases and declines over the years. Equity saw a significant drop in 2023, primarily because the company chose to return more money to shareholders through dividends and share buybacks. Instead of retaining all of its profits, Pandora allocated a portion of its cash to reward investors, which lowered the equity on its balance sheet. Additionally, the company took on a bit more debt to optimize how it funds its operations. Given these strategic decisions, the decline in 2023 isn’t a concern. It’s also encouraging that Pandora managed to slightly increase its equity in 2024.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is no surprise that Pandora has delivered positive free cash flow every year over the past decade. What is particularly encouraging is that the company achieved its highest free cash flow ever in 2023—only to surpass it again in 2024. This was despite record-high capital expenditures in 2023, which increased further to a new all-time high in 2024, impacting the levered free cash flow margin. The rise in capital expenditures is primarily due to Pandora’s construction of a new crafting facility in Vietnam, which will expand its production capacity by approximately 50%, allowing the company to manufacture up to 60 million pieces of jewelry annually. Once the facility is completed, it should have a positive effect on the levered free cash flow margin. Management has stated that they expect to generate significant free cash flows, which, in line with Pandora’s historic approach, will be fully returned to shareholders through share repurchases and dividends. This means Pandora investors can look forward to higher dividends and increased ownership over time. While the free cash flow yield isn’t as high as it has been in the past, it remains well above 7%, indicating that the stock is trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to evaluate whether a company has a manageable debt level that can be repaid within three years, which is determined by dividing total long-term debt by earnings. Analyzing Pandora’s financials, we find that the company has 1,54 years of earnings in debt. This is well below the three-year threshold, indicating that Pandora’s debt level is manageable and not a concern for me if I were to invest.

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Risks

Macroeconomic conditions present a significant risk for Pandora because they directly impact consumers' ability and willingness to spend on discretionary items like jewelry. Unlike essential goods such as food, housing, and healthcare, jewelry is a non-essential purchase, making it particularly sensitive to changes in disposable income and consumer confidence. High inflation and rising interest rates can erode consumers' purchasing power. When everyday expenses such as groceries, rent, and utilities become more expensive, individuals have less discretionary income to spend on luxury and semi-luxury items like Pandora’s jewelry. This can lead to a decline in demand, particularly among middle-income consumers who form a key part of Pandora’s customer base. Economic uncertainty also plays a role in consumer behavior. When people worry about potential job losses or economic instability, they often shift their focus toward saving rather than spending on non-essential goods. During economic downturns, brick-and-mortar retail stores may see a decline in foot traffic, as consumers cut back on discretionary spending. Even online sales can be affected as shoppers become more cautious about non-essential purchases. While Pandora benefits from an omnichannel strategy, reduced overall consumer spending could still impact both its physical and digital sales channels. A historical example of how macroeconomic conditions can affect the luxury and jewelry market is the 2008 financial crisis. During that period, many luxury brands, including jewelry companies, experienced a sharp drop in sales as consumers tightened their budgets. Although Pandora’s positioning as an "affordable luxury" brand helped cushion some of the impact compared to ultra-luxury brands, it still faced challenges in sustaining demand. Looking ahead to 2025, Pandora expects the consumer environment to remain challenging due to ongoing macroeconomic uncertainties. The company has acknowledged that jewelry markets continue to experience slow growth, and external pressures on consumers remain high.

Brand perception and trends is a risk for Pandora. Pandora's brand perception and ability to adapt to changing fashion trends are crucial for maintaining consumer trust and driving sales. A strong reputation encourages repeat purchases and fosters brand loyalty, making it essential for long-term success. However, the company faces risks related to pricing perception, with some customers feeling that its products are overpriced relative to the quality and materials used. This perception could impact its value proposition and customer satisfaction, making it important for Pandora to address these concerns and ensure consistent product quality. Fashion trends heavily influence the jewelry industry, and Pandora must continuously update its product offerings to align with evolving consumer preferences. If the company fails to keep up with these trends, it risks losing relevance, leading to outdated collections and declining consumer interest. Some customers have criticized the lack of innovation in Pandora’s designs, citing repetitive styles that do not always reflect changing tastes. Regularly introducing fresh and compelling designs is necessary to maintain a competitive edge. As Pandora’s brand continues to grow, the rise of counterfeit products presents another challenge. Fake Pandora jewelry can damage the company’s reputation, erode consumer trust, and lead to revenue losses.

Competition poses a significant risk to Pandora due to the highly competitive nature of the jewelry industry, where numerous established and emerging brands vie for consumer attention. Competitors offering similar products with innovative designs or competitive pricing can impact Pandora’s market share and customer loyalty. Differentiation through design, quality, and customer experience is essential for sustaining success. In recent times, there has been an increase in promotional activities among competitors, reflecting the challenging market environment. Notably, during the end of last year, some competitors engaged in more intense promotional behavior, a trend observed across various countries. This included extended promotional periods and deeper discounting, with even players who previously refrained from such tactics entering the promotional arena. This heightened promotional environment indicates a shift in competitive strategies, potentially affecting consumer perceptions and purchasing decisions. Pandora's competitors include renowned brands such as Tiffany, Blue Nile, Harry Winston, Chopard, Graff, Bulgari, and Zales. These brands have established strong market positions and continue to innovate in design and marketing strategies. For instance, Tiffany has a longstanding reputation for luxury and quality, while Blue Nile has pioneered online jewelry retailing, offering competitive pricing and customization options. The jewelry market is also experiencing a blend of tradition and technology, with trends such as handcrafted and personalized jewelry gaining popularity alongside the rise of ethical and sustainable practices. Luxury and fine jewelry brands are leveraging digital marketing, social media influencers, and online sales platforms to reach millennial and Gen Z buyers. Custom jewelry design and vintage styles are in high demand, while innovations like augmented reality try-on and virtual showrooms enhance the shopping experience. To navigate these competitive pressures, Pandora must continue to innovate in its product offerings, enhance its brand differentiation, and maintain a keen awareness of market trends and consumer preferences. Failure to do so could result in a loss of market share and diminished profitability.

Reasons to invest

Pandora’s strategic shift toward becoming a full jewelry brand represents a major growth opportunity. Historically known for its charm bracelets, the company is now expanding its presence across all jewelry categories, aiming to establish itself as a one-stop shop for all types of jewelry. This transformation is at the heart of Pandora’s long-term strategy, which focuses on sustaining steady growth in its Core segment while driving higher growth through Fuel with More. The Core segment, centered around charms and carriers, remains the foundation of Pandora’s business. Collections like Pandora Moments continue to show stable growth, contributing to the company's strong brand identity. At the same time, Fuel with More has been a key driver of Pandora’s evolution beyond charms and bracelets. This segment achieved an impressive 22% like-for-like growth in 2024, following strong growth of 14% in 2023, demonstrating increasing consumer engagement across various collections. Pandora’s new collections are successfully expanding its appeal and bringing in new customers. The launch of Pandora Essence in 2024 has been particularly promising. This collection introduces organic, fluid, and natural jewelry designs - a category where Pandora previously had little exposure but which represents 17% of the global jewelry market. Since its launch, Essence has already grown to 2% of revenue, indicating strong early traction. Management has stated that new collections need to reach a critical mass within three to five years, targeting at least a 5% revenue share. If Essence continues its growth trajectory, it could become a meaningful contributor to Pandora’s long-term expansion. Lab-grown diamonds are another important part of Pandora’s full jewelry strategy. This collection saw a remarkable 43% like-for-like growth in 2024 and has had a broader positive effect on the Pandora brand by increasing overall consideration for its jewelry. Management believes lab-grown diamonds will continue gaining traction, and to support this, the company introduced a new microfine diamonds range at the end of 2024. Pandora aims to become the most desirable brand in this category while making diamonds more accessible to a wider audience.

Pandora’s ongoing expansion through new store openings presents a compelling reason to invest, offering a clear and predictable path for revenue growth. The company is focusing on company-owned stores, which have consistently outperformed franchised locations in both sales and profitability. With approximately 7.000 viable locations identified across its markets, Pandora has a significant runway for further expansion. The financial case for opening new stores is particularly strong. Management has stated that new company-owned stores achieve an EBIT margin of around 30% in their first year, eventually rising to the mid-40% range. Such high profitability is rare in the retail industry, making Pandora’s store expansion an efficient and attractive growth driver. Beyond increasing its store count, Pandora is also transforming its retail experience through the rollout of its Evoke 2.0 concept. This new store format is designed to enhance the in-store shopping experience by intuitively showcasing all of Pandora’s collections, reinforcing its transition into a full jewelry brand. Early results from the new concept indicate a low-single-digit uplift in like-for-like sales compared to the previous store format, demonstrating its potential to drive higher engagement and conversion rates. In 2024, Pandora opened 236 net new stores, contributing 5% incremental growth. The company plans to continue its expansion in 2025 with 75 to 100 additional openings. With a highly profitable store model, a well-defined expansion strategy, and a strong focus on improving the retail experience, Pandora’s store network remains a key driver of long-term growth and market share gains.

Pandora’s focus on personalization is a strong reason to invest, as it enhances customer engagement, strengthens brand loyalty, and provides incremental revenue growth. Personalization has become a key consumer trend in the jewelry industry, with customers seeking unique and meaningful pieces that reflect their individuality. Pandora is capitalizing on this demand by expanding its personalized offerings, particularly through its engraving services and its My Pandora loyalty program. Engraving services have seen significant expansion, with the number of stores offering instant engraving increasing eightfold from 2021 to 2024. By the end of 2024, approximately 1.600 stores were equipped with engraving machines, doubling from the previous year. This rapid expansion has been driven by strong consumer demand, as customers increasingly appreciate the ability to personalize their jewelry with meaningful messages, initials, or symbols. Beyond in-store personalization, Pandora has also built a strong online offering for engraving, ensuring that customers across major markets have access to the service. The My Pandora loyalty program, launched in 2022, is another key element of Pandora’s personalization strategy. By the end of 2024, the program had expanded to six countries, including the US and Canada, covering more than 40% of revenue in participating channels. The program now boasts 9,1 million members, significantly improving customer retention and engagement. Loyalty programs like My Pandora enable the company to offer personalized recommendations, exclusive offers, and targeted marketing campaigns, further enhancing the shopping experience and driving repeat purchases. With increasing consumer demand for unique and customized products, Pandora’s investment in personalization positions it well for long-term success.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 55,10, which is from 2024. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 10,8% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 22, which is twice the growth rate. This decision is based on Pandora's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 997,49. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Pandora at a price of DKK 498,74 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 8.721, and capital expenditures were 1.336. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 935 in our calculations. The tax provision was 1.699. We have 78,83 outstanding shares. Hence, the calculation will be as follows: (8.721 – 935 + 1.699) / 78,83 x 10 = DKK 1.203,22 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Pandora's Free Cash Flow Per Share at DKK 93,68 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 1.233,20.

Conclusion

I believe that Pandora is an intriguing company with strong management. Its competitive moat is built on a unique vertically integrated business model, covering design, crafting, and direct-to-consumer channels, as well as its unrivaled scale in manufacturing, retail distribution, and brand presence. Over the past decade, Pandora has consistently delivered a high return on invested capital and recently achieved its highest free cash flow ever, despite increased capital expenditures. Macroeconomic conditions pose a significant risk, as high inflation, rising interest rates, and economic uncertainty can reduce disposable income and consumer confidence, leading to weaker demand for discretionary items like jewelry. Pandora's success also relies on strong brand perception and its ability to keep up with changing fashion trends. While consumer trust and brand loyalty drive repeat purchases, risks such as pricing perception, lack of design innovation, and the rise of counterfeit products could impact sales and brand value. Competition is another challenge, as both established and emerging jewelry brands continuously innovate in design, pricing, and marketing to attract consumers. The increasing use of deep discounts and extended promotional periods adds further pressure on Pandora’s market position. Despite these challenges, Pandora’s strategic shift toward becoming a full jewelry brand presents a significant growth opportunity. Expanding beyond its core charm business, the company is building a stronger presence in high-growth categories such as rings, necklaces, and lab-grown diamonds. Its ongoing store expansion offers a clear and profitable growth path, with company-owned stores delivering high margins and consistently outperforming franchised locations. With thousands of viable locations identified, Pandora’s strategic expansion supports long-term revenue growth. Additionally, its investment in personalization enhances customer engagement, strengthens brand loyalty, and drives incremental revenue by meeting the growing demand for unique and meaningful jewelry. I believe that Pandora is a great company, and buying shares at the Ten Cap price of $1.203 could be a strong long-term investment.

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