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Tiffany Caution Hits Stocks

Retailer's admission that it is seeing weaker sales in Europe and on the U.S. East Coast sparked a mini luxe sell-off on Tuesday.

Michael Kowalski, chairman and chief executive officer of Tiffany & Co., sparked a mini luxe sell-off Tuesday when he voiced concerns about weakness in Europe and on the East Coast in the U.S., driving the jeweler’s stock down 8.7 percent.

This story first appeared in the November 30, 2011 issue of WWD.  Subscribe Today.

Kowalski admitted to “recent sales weakness in Europe and in the eastern part of the U.S.” The comment sent the company’s stock spiraling down to $67.22, even as third-quarter profits jumped 62.8 percent and handily beat Wall Street estimates.

Kowalski’s comments reverberated in the shares of other high-end retailers, helping to push Ralph Lauren Corp. down 3.2 percent to $140.66, as Coach Inc. slipped 3.1 percent to $60.20, Saks Inc. fell 3 percent to $8.64 and Nordstrom Inc. declined 1.2 percent to $44.66.

The sell-off came just as the sentiment surrounding retail began to improve, with strong sales over the Black Friday weekend and on Cyber Monday and a gain in consumer confidence. The S&P Retail Index rose 0.7 percent, or 3.34 points, to 519.21, as the Dow Jones Industrial Average gained 0.3 percent, or 32.62 points, to 11,555.63.

Concerns about the luxe market have been bubbling up for some time.

“We started to lower our 2012 estimates of the luxury sector a few months ago,” said Stifel Nicolaus analyst David Schick. “There have been some signs already that the high end is a little softer.”

Even though Tiffany has been consistently strong, Kowalski’s comments are “important,” he said, explaining that the news is a “reset” for the market, which came out of the holiday weekend “feeling very good.”

But Tiffany’s vice president of investor relations, Mark Aaron, was a “little surprised” by the market’s reaction, and insisted that the company was just being “candid” and “certainly wasn’t implying doom and gloom.”

Although Tiffany has experienced declining sales in the U.K. for several quarters, Aaron said the jeweler is now noticing a deceleration in business in continental Europe, which “isn’t a surprise to the company and can’t be a surprise to investors, considering the headlines.”

“The Tiffany brand is definitely building awareness in Europe but it’s nowhere even close to hitting its maximum…there’s a strategic opportunity there,” he said. “Part of our success is that we’ve taken this long-term view. This is a brand that has weathered a lot of recessions over the years.”

The 174-year-old company’s third-quarter profits totaled $89.7 million, or 70 cents a diluted share, topping analysts’ estimates by 9 cents. This compared to year-ago income of $55.1 million, or 43 cents a share.

Sales for the quarter ended Oct. 31 rose 20.5 percent to $821.8 million from $681.7 million. The firm’s New York flagship increased 24 percent, which lifted sales 19 percent in the Americas to $387.7 million. Sales in the Asia-Pacific region gained 44 percent, as Japan’s sales increased 12 percent and Europe’s sales advanced 19 percent.

Tiffany extended its full-year profit outlook to $3.70 to $3.80 a diluted share, up from the $3.65 to $3.75 projected in August. Wall Street forecasted earnings per share of $3.71.