With its higher-end business lagging and softness in the Americans, Tiffany & Co. was able to pivot and operate more efficiently in the second quarter, pulling better profits out of lower sales.
The luxe jeweler’s net earnings increased 1 percent to $105.7 million, or 84 cents a diluted share, from $104.9 million, or 81 cents a year earlier.
Earnings per share came in 12 cents ahead of the 72 cents analysts expected and investors approved, sending shares of Tiffany up 5.2 percent to $72.52 in early trading.
Sales for the three months ended July 31 declined 6 percent to $931.6 million and comparable-store sales fell 8 percent. Sales in the Americas business fell 9 percent, while turnover in Europe dropped 12 percent and the Asia-Pacific region fell 6 percent. The outlier was Japan, which saw sales gain 10 percent. Gross profits rose to 61.9 percent of sales, from 59.9 percent a year earlier.
Chief executive officer Frederic Cumenal said: “The global environment continues to reflect well-known challenges that we believe have had broad effects on spending by local customers, as well as foreign tourists, especially from China. We are managing expenses efficiently, but also maintaining our marketing spending as a percentage of sales and continuing to invest in key strategic initiatives and opportunities to further strengthen Tiffany’s competitive position among global luxury brands.”
On a call for investors, Mark Aaron, vice president of investor relations, noted, “We can only speculate on why domestic U.S. consumer spending at the high end has been generally soft, but we believe that macro market and political uncertainties are likely playing a role in restrained consumer behavior.”
The company plans to meet these challenges by focusing on the basics — as Aaron put it, “by better engaging with existing and potential customers and enhancing their experiences both in our stores and online.”
Aaron said Tiffany’s fashion jewelry category and the engagement jewelry and wedding bands category outperformed the statement fine and solitary jewelry styles. The priciest part of the brand’s offering, its statement jewelry, has been the weakest performer this year after posting “very impressive growth” in 2015.
The brand has been working to update its marketing game to help propel the fashion jewelry category, for instance with the #LoveNotLike social marketing campaign, which included a sponsored Snapchat lens that saw “millions” of user plays.
Jefferies & Co. analyst Randal Konik, who has a buy rating on Tiffany, noted: “We are particularly encouraged by the traction Tiffany is seeing in its high-margin fashion jewelry category, which should continue to drive mix benefits. Efforts to drive innovation, such as the new Return to Tiffany Love collection, appear to be gaining traction, while we continue to see opportunity in the sub-$500 silver category, which has seen its [stockkeeping unit] count increase.”