Tiffany Q3 Profit Beats Estimates, But Outlook Disappoints

Tiffany cited its new Locks collection as being a bestseller in its third quarter.

New York–Tiffany & Co. reported today that its third quarter earnings beat forecasts, but shares of the luxury jeweler fell in early trading when the company gave fourth quarter estimates that disappointed investors.

For the quarter ended Oct. 31, Tiffany posted a 63% increase in its net profit to $89.7 million, or 70 cents a share, up from $55.1 million, or 43 cents a share, a year earlier.

Total revenue increased 21% to $821.8 million from $681.7 million a year ago. On a constant exchange rate basis, total worldwide comparable store sales increased 16%. Sales in the Americas grew 17% to $387.7 million with comparable store revenue rising13% on top of an 8% increase in last year’s third quarter.

Despite Report, Shares Drop in Early Trading

The company reported that much of the sales increases in the Americas were in higher pricepoints including engagement rings, platinum and diamond jewelry and gold. “Sterling silver jewelry had a more modest sales increase.”

Sales at the company’s iconic Fifth Avenue flagship in Manhattan rose 24%, boosted by a record number of tourist visiting New York. Its branch store comp sales increase of 13% reflected greater strength in the Western United States especially California and Texas as well as Hawaii and Guan “driven by Japanese tourist spending.”

Tiffany’s results beat analysts’ average forecast which expected earnings of 61 cents a share on sales of $801.8 million. And while the company raised its full year earnings forecast to $3.70 to $3.80 a share, up from previous estimates of $3.65 to $3.74, its fourth quarter forecast, which calls for earnings of $1.48 to $1.58 a share, fell below analysts’ average estimate for $1.63. Fourth quarter sales are expected to rise in the low-teens percentage, the company added.

In early trading today, Tiffany’s share fell to their lowest level since January 2008.

In addition, Tiffany’s gross margin slipped to 57.9% from 58.5% as the company sold more higher-priced, but lower-margined merchandise.

“We are, of course, mindful of continued short-term economic challenges and uncertainties in some markets,” said Michael Kowalski, ceo, said, noting that holiday season sales so far are in line with company expectations despite some weakness in Europe and the Eastern United States.

Other bestselling collections included the Keys collection along with the “very successful” follow up, the Lock collection. “Designer jewelry sales posted a good increase in the quarter highlighted by the introduction of Paloma Picasso’s new Venezia Collection,” the company said. “Outside of jewelry, we have been expanding our relatively new leather collection with more designs, as well as distributing into more of our U.S.stores.”

Margin Pressure to Continue?

Retail analysts noted that although Tiffany’s sales were strong globally, the growth rate has slowed from a 19% increase in the first three quarters combined. Since the Americas and Europe comprised about 60% of the company’s sales, any slowdown could affect overall numbers.

“The luxury consumer is slowing down as you might expect given the financial market turmoil,” David Schick, analyst with Stifel Nicolaus & Co. told Bloomberg News. “There was a lot of momentum in sales in the third quarter and that has clearly slowed down.”

Like other major luxurygoods players, Tiffany has been expanding in Asia-Pacific, where sales rose 44% to $183.2 million, and where the company forecasts full year sales will increase 35%. Revenue rose 12% inJapanand 19% in Europe.

Other analysts warned that the company’s gross margin could slide downward further. “The worry is that there is a turn in the margin and slowing down of the pace of sales growth,” Paul Swinand, analyst at Morningstar.

 

 

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