Pandora Soars as CEO Reassures Owners the Worst Is Behind Them

(Bloomberg) -- Shares in Pandora A/S recouped much of last week’s sudden loss as management spends the day reassuring investors that 2018 will mark a turning point for the troubled jewelry maker.

Chief Executive Officer Anders Colding Friis and the departing head of finance, Peter Vekslund, promised to address investor concerns and pledged handsome returns, during a presentation that won praise from analysts once critical of management’s communication strategy. Tuesday’s capital markets day is the Danish company’s first since 2016.

The CEO acknowledged 2017 had been marred by “hiccups” and said there are “things we can do better.” He also made clear Pandora will “expect to return quite a lot of cash to our shareholders” in 2018-2022. The stock gained as much as 6.4 percent, its biggest increase since November.

Friis is confronting shareholders who have lived through a 27 percent stock-price decline in 2017, and steep losses in early 2018. Management said on Thursday it didn’t quite live up to its targets for last year and signaled profit growth will be more modest through 2022. The only investors to make money on last week’s bad news were the hedge funds that bet against Pandora, after consistently ignoring its assurances.

Reversal of Fate

Pandora used to be a stock-market darling, consistently exceeding its guidance. Its shares jumped 17-fold in the five years through 2016 as management beat market expectations quarter after quarter and revenue and net income both tripled. But as the company has grown, Friis has tried to make the point that a bigger base means slower growth. That message is proving hard to get across.

“Pandora has been under siege the past year by foreign hedge funds who are skeptical about its economic future,” Per Hansen, an investment economist at Nordnet, said in a note on Tuesday before the investor day started. “It’s now a question of delivering as convincing a presentation as possible, so that the hedge funds find nothing to chase and move on.”

Hansen says criticism that Pandora has faced “for being somewhat closed and not humble enough” was justified. “It’s a question of managing expectations,” he said. “Pandora hasn’t been particularly good at that the past year.”

Cashing In

Some hedge funds have recently cashed in on profits. Lone Pine Capital and Coatue Management both reduced their short bets after Thursday’s selloff. But other funds have joined the speculation against Pandora. BlackRock Investment Management placed its first official short bet last week. Indus Capital Partners also created a short position, according to a regulatory filing late on Friday. (The regulator only discloses changes in positions for funds that short at least 0.5 percent of a company.)

Hansen says hedge funds shorting Pandora “will presumably remain a large uncertainty factor.”

Aside from a challenging U.S. retail market, Pandora said a lack of product innovation has been problematic, according to its investor presentation on Tuesday.

Data from IHS Markit shows that about 12 percent of Pandora’s stock is still being shorted. That’s down from a 12.8 percent peak in November, but considerably higher than the roughly 1 percent short interest a year ago. Short traders bet that a stock will decline in value.

Pandora analysts remained mostly positive on the stock throughout 2017. But after last week’s announcement, several banks cut their earnings estimates and targets. At least one, SEB, lowered its recommendation.

Pandora said on Tuesday it will provide guidance specifically for 2018 on Feb. 6. As in previous years, the company will add to shareholder returns by buying back its own stock. Lars Topholm, an equity analyst at Carnegie who once referred to Pandora as bordering on “uninvestable” because of a lack of transparency, prefaced a question to the CEO on Tuesday by praising the “good presentation” he’d just delivered.

According to analyst data compiled by Bloomberg, there are still 15 buys, 3 holds and just one sell recommendation on Pandora. The average price target indicates a return of about 40 percent in 2018.

--With assistance from Gelu Sulugiuc

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net.

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net.

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