Tiffany hit by economic worries as shares fall 9%

CONCERNS ABOUT slowing sales momentum has taken some of the lustre off Tiffany Co’s stock amid signs that European and US economic distress is weighing on luxury consumers. Shares in Tiffany’s fell 9 per cent.

The upscale jeweller, a stock market darling for how fast its international business has grown, reported third-quarter earnings that beat analysts’ estimates but gave a holiday-quarter profit and sales outlook that missed Wall Street expectations.

Chief executive Michael Kowalski said in a statement there had been “recent sales weaknesses in Europe and in the eastern part of the US”.

Chief financial officer Pat McGuiness told analysts on a conference call that Tiffany was “cognisant of the challenging economic conditions and uncertainties in a number of markets”. Globally, Tiffany’s sales in the third quarter were up 17 per cent in the third quarter, excluding the impact of currency translation.

That however is below the 19 per cent pace of the first three quarters combined. The slowdown was limited to the Americas and Europe, which together make up nearly 60 per cent of Tiffany’s business. In Japan, its second biggest market, and elsewhere in Asia, the pace picked up.

Tiffany’s shares traded late on Monday at a forward earnings-price ratio of 23.31, above the 16.95 for the retail sector as a whole, according to Thomson Reuters.

That set up Tiffany’s shares for a fall at any sign of trouble, said Morningstar analyst Paul Swinand, calling them “richly” valued.

Another concern was that gross margin, a measure of profitability on jewellery sold, slipped, Mr Swinand added.

Tiffany’s gross margin edged down 0.6 points to 57.9 per cent in the third quarter, largely because it sold more pricey jewellery, which the company said had lower margins. The mark-up of very-high-end jewellery was typically lower, analysts said.

Tiffany reported net income of $89.7 million, or 70 cents a share, for the third quarter ended October 31st, up from $55.1 million, or 43 cents a share, a year earlier and above the 61 cents a share that analysts were expecting, according to Thomson Reuters I/B/E/S. – (Reuters)