E-commerce sales as well as strength in its wholesale diamond business lifted the top line at Tiffany & Co. in the second quarter. And even as total comparable-store sales declined, the New York-based high-end jeweler said sales in mainland China were robust as brand-building campaigns are paying off.
The company posted global sales for the second quarter of $306 million, a 3 percent increase over the same quarter last year, on net earnings of $115 million, a 9 percent jump. Comparable-store sales overall fell 2 percent. This is the company’s seventh consecutive quarter of comp sales declines. Comp sales fell in the Americas by 1 percent, by 7 percent in Asia-Pacific and by 2 percent in Europe. The declines were in line with Wall Street’s expectations.
Tiffany opened three stores in the first half of the year and closed four.
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“While net earnings rose in the first half, we remain determined to drive comparable-store sales growth and stronger, sustainable earnings growth through a continued focus on product design innovation in jewelry and luxury accessories, further optimization of our store base, more impactful marketing communications and highly effective customer engagement both in-store and online,” Michael J. Kowalski, chairman and interim chief executive officer, said.
Kowalski added that under the leadership of newly appointed ceo Alessandro Bogliolo, he believes the company will “realize the potential of our extraordinary global brand.”
As for the rest of the year, Tiffany still expects global net sales and earnings to grow in the low-single digits. The company also expects to increase its square footage by 2 percent.
Mark L. Aaron, vice president of investor relations, said on a conference call that the company is “determined to improve top-line growth by pursuing several important strategies. One relates to an accelerated pace of product introductions in the future across all categories. Another is pursuing clienteling to more effectively engage with customers and deliver an enhanced Tiffany experience.”
Regarding the overall same-store sales decline, Aaron said the company attributed it to “lower foreign tourist spending.”
“I should add that our New York flagship store has returned to a relatively normal flow of customer traffic following the disruption immediately after the 2016 election, and was not a drag on overall sales in the quarter,” Aaron said.
By region, Aaron noted the “modest increase in total sales” was due to “higher wholesale sales and new store openings over the past year as well as higher jewelry units sold, primarily in the fashion and designer categories, though this increase in units was mostly offset by lower average price per unit sold.”
Aaron also said that strong sales growth in mainland China “was more than offset by softness in most other countries, which we attribute at least in part to lower Chinese tourist spending. We attribute the growth in mainland China to local customer spending where we continue to build brand awareness.”
Regarding its product offerings, Aaron said there was “solid sales growth in both the fashion jewelry and designer jewelry categories contrasted with lower sales in both the engagement jewelry and the high fine and solitaire categories.” He said that from a collection perspective, “we especially call out the initial success of the new Tiffany hardware collection that we launched in April as well as relatively strong performance in our Tiffany T and 1837 collection.”
Ironically, both the hardware collection and the Tiffany T line were designed by then-design director Francesca Amfitheatrof, who joined the brand in 2013 but whose contract was not renewed in January. She was replaced by new chief artistic officer Reed Krakoff, whose first designs for the company in leather goods and homeware will roll out this fall but whose first jewelry collections won’t be introduced until some time in 2018.
Mark J. Erceg, chief financial officer and executive vice president, said gross margins expanded by 40 basis points in the quarter “particularly in light of the increase we had in wholesale diamond sales which, as we’ve indicated in the past, is gross margin dilutive.”
The company’s wholesale diamond business operates as a subsidiary under the Laurelton Diamonds moniker. It sources rough diamonds from suppliers that include De Beers. On its web site, the company noted that wholesale sales include “merchandise to independent distributors for resale in certain markets and wholesale sales of diamonds obtained through bulk purchases that are subsequently deemed not suitable for Tiffany’s needs.”
Wholesale sales also include income from a licensing agreement.
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