The U.S. dollar is starting to give more brands a headache.
The greenback has gained against a raft of currencies lately, hurting U.S. companies that operate around the world and also brands that rely on tourists who come to the States to shop.
Luxury jeweler Tiffany & Co., which revealed weaker than hoped for first-quarter results Tuesday, felt both kinds of currency pain.
Tiffany’s sales for the quarter ended April 30 declined 2.9 percent to $1 billion as a strong dollar dissuaded tourists from opening their wallets in the Americas. The company’s comparable sales were also hurt by currency translations and fell 5 percent, including a 5 percent drop in the U.S. and the Asia-Pacific region, a 4 percent decrease in Europe and Japan. Net earnings declined 12 percent to $125.2 million.
“The strong dollar had a meaningful impact on first-quarter retail sales attributed to foreign tourists in the Americas,” said its chief executive officer Alessandro Bogliolo, adding that tourist sales in the U.S. were down approximately 25 percent. The slide was even steeper among Chinese visitors.
Bogliolo told WWD that while the brand remains strong in China, a very strong U.S. dollar and a weak renminbi made it more expensive for Chinese tourists visiting the U.S.
The situation could soon be exacerbated.
Currently at 6.908 yuan per dollar, there is speculation that the exchange rate could break through the crucial 7 yuan per dollar level if relations between the two nations deteriorate further and the tit-for-tat trade war continues. The U.S. has accused Beijing of deliberately allowing its currency to weakest to offset new U.S. tariffs, which are slated to be extended to apparel.
But even if the currency doesn’t weaken further, spending from Chinese visitors may not pick up any time soon as Beijing last week warned its citizens to reconsider visiting or studying in the U.S. amid the worsening trade dispute.
There is some evidence that this is already starting to happen. Travel from China to the U.S. dipped 5.7 percent last year to 2.9 million visitors. This was the first time the number had fallen in 15 years.
Tiffany is also feeling the trade war’s tariffs in China doors as it is one of the few fashion brands to sell U.S.-made goods in the market. (Most of the rest of the fashion industry is worried about duties on goods made in China and intended for U.S. customers.)
Bogliolo said the company’s average tariff increase in China was about 10 percent, but the brand would take the gross margin hit and not pass on those costs in order to remain competitive.
“We will not penalize the consumers for retaliatory duties,” he said. “We are really trying to be neutral, consumer-wise.”
The timing is tough for Tiffany since China had cut import duties recently, lowering prices on jewelry across the market.
While currency changes are keeping tourists away from the U.S., the brand’s customers at home have also taken a step back, although the company didn’t link this to currency changes. “The U.S. customer is very cautious in their purchases,” Bogliolo said. “The sales are slightly positive, but I see a lot of caution.”
And Tiffany is not alone.
Last week, Calvin Klein-owner PVH Corp. singled out the strong U.S. dollar as having hurt tourist spending and chilled the company’s outlet sales.
Its North American retail business saw a 4 percent drop in comparable sales, which was largely driven by weaker international tourism levels thanks to a much stronger U.S. dollar weighing on foreign currency purchasing power.
“Because of the overall macro and geopolitical context, the U.S. dollar has continued to strengthen. As such, foreign currency translation will further pressure our fiscal year earnings,” ceo Manny Chirico said during an earnings call with analysts.
Hanesbrands Inc. also recently warned investors that adverse foreign currency exchange rates for the year are expected to reduce net sales by approximately $115 million compared with last year, while Nike Inc. expects foreign exchange headwinds to result in low-single-digit revenue growth in its fiscal fourth quarter.
Elsewhere, Capri Holdings Ltd. is forecasting Michael Kors revenue to come in slightly lower than expected at $4.45 billion for the 2020 fiscal year, “reflecting incremental negative foreign exchange impact from an anticipate stronger U.S. dollar,” as well as lower wholesale revenue.
And it’s not just retailers feeling the squeeze. According to FactSet data, which analyzed 23 S&P 500 companies who had reported first-quarter results by mid-April, currency movements were cited as the top negative impact.
This followed on from the final quarter of last year when in its latest currency impact report, compliance firm Kyriba found that publicly traded North American companies reported $20.84 billion in collective currency value losses, up 77 percent from the previous year.
“While China’s devaluation of the yuan played the primary role in currency value losses in 2015, this time the ongoing U.S.-China trade war, as well as other geopolitical events such as Brexit, have had the greatest negative impact on currency holdings,” said Wolfgang Koester, Kyriba’s chief strategist.
Yesterday, the U.S. Dollar Index, which measures the greenback’s strength against a basket of currencies, slipped 0.02 percent to 97.12.