Shares of Tiffany & Co. continue to struggle one week after the company delivered top-line results that were impacted by softer spending from Chinese tourists visiting the U.S. as well as in Hong Kong.
Shares fell nearly 10 percent after the report last week, but rallied on Monday. Today, as the entire market is weighed down by concerns over trade and the increasing likeliness of a global economic slowdown, shares of Tiffany are off 3.4 percent to $87.82 at the midday session. The stock’s 52-week high is $141.64, and the low is $86.51.
Tiffany’s share price decline is steeper than the S&P 500, which is trending down 1.5 percent to 2,660 while the Dow Jones Industrial Average is down about 2 percent to 24,534.
With Tiffany, investors were shaken by the negative impact of Chinese tourists. Ike Boruchow, senior analyst at Wells Fargo Securities, said in a report earlier this week that “currency fluctuations, price reductions on the Mainland and a recent crackdown on China’s ‘daigou’ (an industry based on shoppers buying luxury goods overseas and bringing them back to China)” were to blame.
“The key issue here is that we see 25 to 30 percent of [Tiffany’]s business being impacted by key issues that are out of the company’s control, and regardless if their turnaround strategies are sound (we believe they are), this places a larger macro risk on their global business,” Boruchow said in his report.
On Wednesday, analysts from Telsey Advisory Group met with the management of Tiffany and said in a research note after the session that despite fears of slowing Chinese tourist spend, the company is “focused on growth on the mainland. With concerns over slowing Chinese tourist spending (coming as a result of reduced consumer confidence, a weaker currency, and increased restrictions on gray market activity), management remains committed to what it can control, which is driving strong growth in each market among locals.”
Dana Telsey, chief research officer of her namesake firm, said that to that last point, Tiffany “has driven solid growth in local customer sales over each of the last three quarters, benefiting from the early execution of the company’s six strategic initiatives.”
In the report, the Telsey Advisory Group analysts said Tiffany continues to invest in China, which includes “increasing marketing spend, optimizing its store portfolio (opened three new stores and relocated two older ones this year), and generating greater brand awareness through partnerships with local celebrities and a greater social media presence.”
Telsey added that “while the U.S. remains the most cost-effective market to purchase Tiffany product, the pricing structure has improved over the last year or so.” With U.S. price points as the baseline, Telsey figured that product prices in Europe are about five to 10 percent higher, while in Asia and the Pacific-Japan market they are about 15 percent higher. This compares to about 25 percent higher in China.
“Historically, China prices had been upwards of 40 to 45 percent above the U.S. levels, accounting for tariffs and shipping costs,” Telsey said in the report. “Management continues to see a strong business in China, with the overall slowdown in Asia-Pac last quarter reflecting a slowdown in Korean wholesale sales to duty-free shops that had been very strong in the first half as a weaker Chinese renminbi made shopping there less attractive.”