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Tiffany Shares Dive as U.S. Sales Weaken

Troubles prompted a weaker outlook for the year.

Troubles in the U.S. hit Tiffany & Co.’s first quarter hard and prompted a weaker outlook for the year, pulling the jeweler’s stock to a new 52-week low on Thursday.

This story first appeared in the May 25, 2012 issue of WWD.  Subscribe Today.

The upscale retailer blamed flat earnings on a slowdown in the Americas, but it remains to be seen if the troubles are company-specific or indicative of a broader deceleration in the luxury market.

Tiffany shares slid 6.8 percent to $57.59 and hit a new 52-week low of $55.75 in midday trading. Rival Signet Jewelers Ltd., which also reported earnings, saw its stock fall 7.8 percent to $44.01 after it said it experienced a slowdown at the high-end of its offering. Further down the price scale, Zale Corp.’s shares tumbled 6.8 percent to $2.46 after it indicated softness in its U.S. business earlier this week.  

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Decelerating sales in the Americas and Asia-Pacific pushed the New York-based Tiffany to revise its annual profit guidance to between $3.70 and $3.80 a share from a range of $3.95 and $4.05. Wall Street expected earnings of $3.97 a share for the year.

Implicit in Tiffany’s guidance is a decline in earnings in the second and third quarters, which is surprising considering how bullish the brand had been at the end of March when year-end results were released. At the time, the luxe jeweler showed slowing financial results in the fourth quarter, but raised its annual guidance above Wall Street’s expectations, adding that the deceleration was “not a long-term phenomenon.”

Although Tiffany had acknowledged a slowdown, it “did not factor in enough of the difficult year-over-year comparisons,” as well as the “more recent” global economic volatility, chief financial officer and senior vice president Pat McGuiness told analysts on the conference call Thursday.

When pressed to explain further why the brand decided to raise guidance in spite of the deceleration, Mark Aaron, vice president of investor relations, told WWD: “Our regional store management thought [the guidance] was achievable.

“With hindsight, they didn’t factor in the difficult year-over-year comparisons,” he said. “I’ve had a lot of push-back from investors because of that. Having gone through the first quarter and realizing the comparisons are tougher than the company had anticipated, we took the opportunity to tweak those assumptions.”

Aaron cited data from MasterCard SpendingPulse that indicated a slowdown in spending in the luxury jewelry segment. According to SpendingPulse, which monitors all U.S. sales activity by cash, check or credit card, the high-end jewelry market began decelerating at the end of 2011. In the fourth quarter, sales increased 7 percent year-over-year, while in the first quarter, they rose 5.3 percent. But business took a dive in the month of April, declining 3.7 percent. The broader luxury market rose 13 percent in the fourth quarter and increased 6.7 percent in the first quarter and edged up 1.8 percent in April.

Michael McNamara, vice president of MasterCard SpendingPulse, said a pullback in spending from European tourists has played a large role in the broader slowdown.

This was evident at Tiffany, which uncharacteristically saw a 4 percent dip in same-store sales at its New York flagship. The decline was due partially to a decline in spending from European tourists, as well as tougher year-over-year comparisons.

“We really have to wait and see how the story plays out in Europe to see if this is the start of something more severe,” McNamara noted.

Nonetheless, Tiffany’s tepid first-quarter results couldn’t be squarely attributed to a European slowdown.

For the period ended April 30, the New York-based brand posted a 0.6 percent increase in net income to $81.5 million, or 64 cents a diluted share, versus year-ago income of $81.1 million, or 63 cents a share. Profits came in 5 cents a share below the 69 cents analysts expected.

Quarterly net sales rose 7.6 percent to $819.2 million from $761 million a year earlier.

In the Americas region, which represents slightly less than half of the company’s worldwide revenues, comparable-store sales were flat after a 17 percent rise a year earlier. Comps in Asia Pacific increased 10 percent on top of a 26 percent comp gain a year earlier. In Japan, same-store sales edged up 12 percent over a 3 percent dip, while in Europe, comps were flat following a 15 percent first-quarter increase last year.

Tiffany and its competitors face the challenge of continuing to grow with signs of softness in the U.S., decelerating growth in Asia-Pacific, a Japanese economy that is still recovering from last year’s tsunami and a volatile Europe worried over its debt crisis.

“We’re just trying to weather the storm,” Tiffany’s Aaron said. “We’ve taken a long-term approach to growing our business. There is certainly no change in strategy.”

Tiffany is looking to the fourth quarter of this year to provide a much-needed bump, given stabilizing precious metal and diamond costs coupled with its 175th anniversary and a host of new jewelry launches.

“We certainly don’t think this [slowdown] is Tiffany-specific,” offered Aaron. “This company has so many huge opportunities to grow its store base and build brand awareness. There’s no need for any major course corrections here.”