Tiffany cuts view, low-price silver jewelry sales fall

Thu Nov 29, 2012 6:51pm GMT

Jewelry packaging from Tiffany & Co. is shown in this illustration photograph taken in Encinitas, California March 19, 2012. REUTERS/ Mike Blake

Jewelry packaging from Tiffany & Co. is shown in this illustration photograph taken in Encinitas, California March 19, 2012.

Credit: Reuters/ Mike Blake

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(Reuters) - Tiffany & Co (TIF.N) lowered its fiscal-year sales and profit forecast for the third straight quarter after weak quarterly sales of its high-margin but inexpensive silver jewelry and a drop in quarterly same-store sales in its key Asia market.

Shares slid 6.2 percent in afternoon trading on Thursday.

In the Americas, still its largest market by a wide margin, Tiffany sold fewer items, with the drop entirely attributable to silver jewelry costing less than $500, its most profitable merchandise. The slide suggests less affluent shoppers are pulling back, even as sales of its more expensive items rose.

"People are waiting more for key periods like the holiday season to spend money on gifts," Morningstar analyst Paul Swinand said.

The high-end retailer gets about one-quarter of its sales from its less expensive jewelry.

U.S. same-store sales at lower-end rivals like Zale Corp ZLC.N and Signet Jewelers (SIG.N) also slowed during the quarter, compared to a year earlier.

The rest of the holiday season might not be any better for jewelry sellers. According to a Reuters/Ipsos poll last weekend, 41 percent of consumers said they plan to spend less on jewelry this year than last year, while only 5 percent expect to spend more. Thirty-five percent expect to spend the same amount.

STILL CONFIDENT ABOUT CHINA

Tiffany, famed for its blue boxes, has banked heavily on new fast-growing markets, particularly Asia outside Japan. But the region, where it now gets nearly one-quarter of its business, has been affected by the economic slowdown in China.

Sales at Asian stores open at least a year fell 4 percent, excluding currency effects, with weakness most acute in Hong Kong. In the year-ago quarter, same-store sales in Asia rose 36 percent.

But the company said it was confident that things in China, viewed by experts as the motor for luxury's growth, would pick up again.

"We remain confident that China will experience significant economic growth in the years ahead and that the Chinese will continue to increase in importance as customers of Tiffany and other luxury goods purveyors," Mark Aaron, vice president of investor relations, said on a conference call.

The New York-based jeweler now expects global net sales to rise between 5 percent and 6 percent for the year ending in January, down one percentage point from its most recent forecast, which followed earlier downward revisions.

That implies that total holiday quarter sales, which generate about a third of annual revenue, should rise by a mid-to-high single-digit percentage, the company said.

'CAUTIOUS' GLOBAL OUTLOOK

Tiffany has a "cautious" near-term view of the global economy, but expects results to start improving during the current holiday season, Chief Executive Michael Kowalski said in a statement.

It projected full-year profit of $3.20 to $3.40 per share, down from an earlier range of $3.55 to $3.70. Wall Street targeted $3.60 per share.

Global sales rose 3.8 percent to $852.7 million in the third quarter that ended October 31, while sales at stores open at least a year across the chain rose 1 percent. Analysts expected sales of $859.2 million, according to Thomson Reuters I/B/E/S.

Net income fell to $63.2 million, or 49 cents per share, for the quarter, from $89.7 million, or 70 cents, a year earlier. The latest result was 14 cents below Wall Street's projections.

Earlier this year, consulting firm Bain & Co forecast that global luxury sales growth would slow. Last week, the head of French luxury group LVMH (LVMH.PA) watches and jewelry division said luxury brands still faced challenges in China.

The slowdown comes as Tiffany plans to open eight new stores in the region.

In the Americas, sales rose 3 percent, largely because of improving business at its Fifth Avenue flagship store, where sales were up 5 percent.

Europe, with the exception of Britain, also showed improvement. Same-store sales rose 8 percent in constant currency terms. In Japan, Tiffany's second-largest market, sales rose 3 percent.

Tiffany's stock fell $3.93 to $59.80 in afternoon trading.

(Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe and Jan Paschal)