S&P downgrades Pandora's outlook to negative due to rising silver production costs

Investing.com - S&P Global Ratings has revised the outlook for Danish jewelry manufacturer Pandora (CSE:PNDORA) from stable to negative, while confirming its BBB rating. The downgrade is due to rising silver prices and the costs associated with transitioning to platinum-plated products, which have temporarily increased leverage.

The rating agency expects Pandora’s adjusted EBITDA margin to decline from 29.7% in 2026 and 32.2% in 2025 to 21.7% in 2027, mainly reflecting pressure from higher silver procurement costs caused by rising silver prices. Pandora hedged approximately 90%-100% of its silver exposure at around $32 per ounce in 2026, with a hedge price of $29 per ounce in 2025. For 2027, the company plans to hedge demand at the current volatile price of $78 per ounce (as of February 19), down from about $120 per ounce in January. Pandora aims to convert about 80% of its silver product line to platinum-plated products, completing roughly 50% of the transition by 2027. This will require capital expenditures of about 600 million Danish kroner and special costs of approximately 600-700 million Danish kroner during 2026-2027.

S&P expects Pandora’s revenue to decline by about 2.0% to 31.9 billion Danish kroner in 2026 and by 1.2% to 31.5 billion Danish kroner in 2027, due to weak consumer spending limiting discretionary purchases in core European markets including Italy, the UK, and France. Fourth-quarter 2025 results showed that the U.S. market, accounting for about 36% of total revenue, experienced only about 2% same-store growth, reflecting weak store traffic during the holiday season. The company plans to open 50-75 new concept stores in 2026 to expand its U.S. presence and strengthen its brand influence across Europe.

S&P’s revised leverage ratio is expected to temporarily spike from 1.2x in 2026 to approximately 1.7x in 2027, diverging from Pandora’s historical record of maintaining a post-adjustment debt-to-EBITDA ratio below 1.5x during 2023-2025. Pandora has suspended its share buyback program to preserve liquidity and is expected to resume buybacks after the adjusted leverage ratio falls below 1.5x, starting in 2028. The rating agency also expects free operating cash flow (after leases) to decrease from a historical average of 4-5 billion Danish kroner to about 1.8 billion Danish kroner in 2027.

If organic revenue declines, EBITDA margins fall below historical stable levels, or the adjusted debt-to-EBITDA ratio remains above 1.5x for an extended period, S&P may downgrade the rating. Conversely, if Pandora successfully manages rising input costs through effective hedging and transition to platinum-plated products, restoring revenue growth and profitability to historical levels, and if the adjusted debt-to-EBITDA ratio sustainably falls well below 1.5x, the outlook could be revised back to stable.

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