BUSINESS

Tiffany lowers outlook for the year as wealthy shoppers still cautious on jewelry spending

08/27/2012 07:31 EDT | Updated 10/27/2012 05:12 EDT
NEW YORK, N.Y. - Upscale jewelry chain Tiffany & Co. lowered its outlook for the year on Monday as the wealthy cut back on buying baubles in an uncertain economy.

Company shares rose more than 7 per cent Monday, however, as revenue in established stores, a key measure for retailers, declined less than analysts had expected in the second quarter. Investors may also have been encouraged that Tiffany is planning stores in new cities despite its challenges.

The affluent had been spending more since the Great Recession ended in mid-2009, recovering faster than other people. But starting late last year, Tiffany's customers trimmed their spending on jewelry amid stock market volatility and growing worry about the debt crisis in Europe.

"Not surprisingly, sales growth has been affected by economic weakness in a number of markets," said CEO Michael J. Kowalski. "We think it is only prudent to maintain a cautious near-term outlook about global economic conditions and the effects on customer spending."

Tiffany, known for its blue boxes, earned $91.8 million, or 72 cents per share, for the period ended July 31, up 2 per cent from $90 million, or 69 cents per share, a year earlier.

Analysts expected earnings of 74 cents per share.

Revenue for the New York company rose 2 per cent to $886.6 million from $872.7 million. Wall Street forecast $891.1 million.

Sales in the Americas edged down 1 per cent to $434 million. Sales in the New York flagship stores fell 9 per cent, after a 41 per cent increase a year ago, because U.S. customers are spending less, said Tiffany spokesman Mark Aaron. Sales in U.S. stores to foreign tourists were roughly unchanged from the prior year as more Chinese visitors helped offset a decline in spending by European tourists in the U.S.

Japan's sales increased 11 per cent to $159 million, while sales in the Asia-Pacific region, a once hot area, rose just 1 per cent $174 million. European sales fell 1 per cent to $100 million.

Overall, revenue at stores opened at least a year fell 1 per cent. Analysts surveyed by FactSet had expected a 4 per cent drop.

The company also continues to grapple with high costs for silver and gold, which have eroded its profitability. However, those costs have moderated a bit.

Still, Tiffany is determined to fortify its competitive edge.

It now plans to open 28 company-operated stores this year compared with the previously planned 24. In the second half, Tiffany plans a store in Manhattan's Soho neighbourhood, a second store in San Francisco, a shop in La Jolla, Calif., a store in Rio de Janeiro and a third store in Toronto.

Tiffany said that it now expects 2012 earnings of $3.55 to $3.70 per share, down from $3.70 to $3.80 per share. Analysts predict $3.65 per share.

It also trimmed its revenue forecast to growth of 6 to 7 per cent for the year, or about $3.86 billion to $3.89 billion. Its prior guidance was for a 7 to 8 per cent increase. Analysts expect revenue of $3.87 billion.

Tiffany's stock gained $4.21, or 7.2 per cent, to close at $62.71 Monday.