BUSINESS

Tiffany's reduces full-year outlook amid slowing demand; 1Q profit essentially flat

05/24/2012 08:56 EDT | Updated 07/24/2012 05:12 EDT
NEW YORK, N.Y. - Tiffany & Co., a bellwether of luxury spending, says its sales aren't rising as fast as last year in the U.S. or abroad, and the gift and jewelry chain cut its forecasts for sales and profit for the year.

Tiffany delivered its lower outlook on Thursday as it reported first-quarter profit essentially the same as a year ago and below what analysts were expecting.

The news from Signet Jewelers Ltd, which targets a more moderate-income market, was similar. Signet reported lower sales than Wall Street expected, and it forecast slower growth.

Investors were spooked and drove down shares of several jewelry retailers. By mid-afternoon, Tiffany's stock fell nearly 7 per cent, Signet's almost 8 per cent.

The affluent had been spending more since the Great Recession ended in mid-2009, recovering faster than other people. But late last year, Tiffany and other luxury players saw them apply the brakes amid stock market volatility and growing worry about the debt crisis in Europe.

Tiffany said its sales to European tourists fell in the latest quarter.

"You are dealing with a global economic environment, and the high end is more susceptible to tourism," said Michael McNamara, vice-president of research and analysis for MasterCard Advisors' SpendingPulse, which monitors all types of spending, including cash.

SpendingPulse figures show jewelry sales rose 10.2 per cent in the third quarter of 2011 compared with a year earlier. But they rose only 7 per cent in the fourth quarter and 5.3 per cent in the first quarter of 2012. April sales actually fell 3.7 per cent compared with a year ago, according to SpendingPulse.

The pullback crimped Tiffany's results. It reported net income of $81.5 million, or 64 cents per share, for the quarter that ended April 30, almost the same as its net income of $81.1 million, or 63 cents per share, a year earlier.

But the jeweler's revenue rose almost 8 per cent to $819.2 million. And the long-term indicator of revenue at stores open at least a year rose 4 per cent. That comparison is an important gauge of a retailer's health.

Analysts had expected earnings of 69 cents per share on revenue of $817.1 million.

Tiffany executives said during a call with analysts that the company is seeing financial industry workers restraining their spending, while they're normally key jewelry shoppers. The company said its rivals have increased their discounting, and its own price increases — driven by higher silver costs — may have scared off some entry-level buyers.

Sales in the Americas, from Canada through South America, rose 3 per cent to $386 million, though revenue at stores open at least a year was flat.

At Tiffany's flagship store on New York City's Fifth Avenue, sales fell 4 per cent. Among tourists, Tiffany said, visitors from Asia spent more and helped offset a drop in spending by tourists from other regions.

In Europe, overall sales rose 3 per cent to $88 million, but revenue at stores open at least a year fell 4 per cent.

In the Asia-Pacific region, total sales rose 17 per cent to $195 million and revenue at stores open at least a year there increased 11 per cent. In Japan, which produces most of Tiffany's sales in the region, both figures rose 15 per cent.

Tiffany said it expects earnings of $3.70 to $3.80 per share for the year. It earlier forecast $3.95 to $4.05 per share. Analysts were expecting $3.98 per share on average, according to FactSet.

Tiffany also expects its sales to rise 7 per cent to 8 per cent, instead of the 10 per cent originally projected. Analysts were expecting $$$$, an increase of xx per cent from the previous year's revenue.

The company said that the lowered outlook won't affect its plan to open 24 stores this year, including one in Manhattan's SoHo district and one in Singapore's Changi Airport.

Its shares fell $4.21, or 6.8 per cent, to close at $57.59 by Thursday. They have fallen 21 per cent the past two months and 32 per cent from their 52-week high of $84.49 last July.

Shares of Signet, which is based in Bermuda and runs chains including Kay Jewelers and Jared The Galleria of Jewelry, fell $3.74, or 7.8 per cent, to $44.01 in heavy trading.