Luxury jewelry retailer Tiffany & Co (TIF 94.20, -10.75) slips 10.2% on Wednesday after this morning’s third quarter report missed expectations across the board as the company highlighted lower spending among Chinese tourists, particularly in the U.S. and Hong Kong, as well as lower wholesale travel-retail sales in Korea as impetus for some of the miss.
Put simply the weakness in China drove a significant portion of the company’s third quarter revenue miss. All told, Q3 net sales were up 3.7% to $1.01 billion, less than the market had expected, while worldwide comparable sales were also behind the market’s view, up “just” 3.0%.
Management highlighted that Jewelry volumes increased in the quarter, resulting in mid-single-digit net sales growth, despite lower-than-expected spending in Q3 attributed to Chinese tourists in the U.S. and Hong Kong and lower wholesale travel-retail sales in Korea.
Net earnings were $0.77 per diluted share as gross margins increased to 62.2% in the quarter, from the prior year’s 61.5%. The increase largely reflected favorable product input costs and lower wholesale sales of diamonds, as well as sales leverage on fixed costs in the year-to-date, but partly offset by increased investment spending and a charge recorded in Q3 of $8.5 million ($0.05 per diluted share) for estimated net losses from the recent bankruptcy filing of a precious metals refiner.
Specifically, by region: the Americas saw net sales increase 5% to $442 million on comparable sales growth of 5%. Management attributed that growth to higher spending by local customers, but partly offset by lower spending attributed to foreign tourists in Q3. On a constant-exchange-rate basis, total sales rose 6% in Q3, and comparable sales rose 5%.
In Asia-Pacific, total net sales rose 4% to $294 million in Q3, highlighted by strong sales growth in mainland China, along with mixed results elsewhere which included a decline in wholesale travel-retail sales in Korea; comparable store sales rose 1% in Q3. On a constant-exchange-rate basis, total sales increased 6%in Q3, and comparable sales increased 4%.
Total net sales in Japan rose 2% to $142 million in Q3 as comparable sales rose 1%. Management attributed the sales growth to higher spending by local customers and foreign tourists. On a constant-exchange-rate basis, total sales increased 3% in Q3 and comparable sales increased 2%. In Europe, total net sales of $114 million in Q3 with varied results by country, and with higher spending attributed to local customers more than offsetting lower sales attributed to foreign tourists; comparable sales declined 3% in Q3, which also reflected the negative effect from new stores on existing store sales. On a constant-exchange-rate basis, total sales increased 5% in Q3 and comparable sales were unchanged in the quarter.
Sales results by jewelry category in Q3 were as follows: Jewelry Collections increased 8%, Engagement Jewelry increased 2%, and Designer Jewelry sales declined 8%.
As to the guidance, Tiffany continues to see worldwide net sales increasing by a high-single-digit percentage. The company also holds EPS guidance in a range of $4.65-4.80 for the full year. Tiffany lowers comparable sales growth guidance to mid-single-digit from mid-to-high-single-digit growth on two more expected store openings, now 10 on two more closings, now expected to be four.
The quarterly snag comes ahead of the all-important holiday selling season for many retailers, Tiffany included. Into the print shares of TIF were up just shy of 1.0%; the stock formed a "death cross" just eight calendar days ago when the 50-day simple moving average (113.83) crossed below the 200-day (116.62). The stock has been reeling since the hot summer saw shares top all-time highs (141.64) in late July. Since those highs the stock has lost nearly 33% whereas the S&P Retail SPDR (XRT 45.50, -0.37, -0.8%) has dipped "just" 9.2% since late July.