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  • Oct 31, 2014
  • Updated: 11:09pm
BusinessCompanies

Tiffany sees China sparkle as diamond demand grows

PUBLISHED : Wednesday, 28 August, 2013, 11:08am
UPDATED : Wednesday, 28 August, 2013, 3:00pm

Tiffany’s strong sales in China and higher prices made up for some disappointing business in its home market in the latest quarter, leading the US jeweler to raise its profit forecast for the year.

There were fears this summer that luxury spending in China might slow as the economy there weakened, but Tiffany is the latest Western brand to report good sales there. Prada and Coach recently posted big gains in the world’s fastest-growing market for luxury goods.

Sales at stores open at least a year in Asia, except for Japan, rose 13 per cent in the second quarter ended July 31, helped largely by China.

But same-store sales were unchanged in the Americas, which is still Tiffany’s biggest market. This suggests the company may have faced the same summer pullback by US shoppers that dented sales at chains ranging from Saks to Target.

“Business in the Americas is light,” said Edward Jones analyst Brian Yarbrough. Tiffany continues to struggle with low-end jewelry sales, he added.

Tiffany executives told analysts on a conference call that tourists’ purchases had helped business tick up at the Fifth Avenue flagship in New York, which generates about one-eighth of sales. Elsewhere, though, there was still reason to be prudent, they said.

“We are maintaining a cautious sales outlook for the Americas until we see solid evidence of an upturn,” Chief Financial Officer Patrick McGuiness said.

An Ipsos poll conducted for Reuters earlier this month found 35 per cent of Americans planned to spend less on jewelry in the this year holiday season, while only 5 per cent expected to spend more.

Tiffany said it still expected net sales worldwide to increase by a mid-single-digit percentage rate for the year, including the effect of the strong dollar.

The company has struggled to find the right mix of the expensive jewelry for which it is known and the more-affordable silver items, typically less than US$500, that generate 25 per cent of sales and comprise its most profitable category.

Still, the pickup in business outside the Americas, where Tiffany is focusing its expansion, reassured Wall Street that the jeweler’s growth prospects remain good, Yarbrough said.

Sales in Asia outside Japan now account for about 22 per cent of overall revenue, compared with 11 per cent five years ago.

The company, famed for its robin’s egg blue boxes, said global sales rose 4.4 per cent to US$925.9 million in the second quarter, below the US$941.4 million analysts were expecting, according to Thomson Reuters I/B/E/S.

Sales growth would have been 8 per cent if not for the strong US dollar, which reduces the value of goods sold overseas.

Same-store sales climbed 5 per cent, in line with estimates. Excluding currency fluctuations, they were up 7 per cent in Europe and 8 per cent in Japan.

Despite strong demand for high-end jewelry in Japan, overall sales there fell 14 per cent because of the weak yen.

Second-quarter net income rose to US$106.8 million, or 83 cents per share, from US$91.8 million, or 72 cents per share, a year earlier.

Per-share profit beat the average Wall Street estimate by 9 cents, helped by lower pressure from diamond and gold costs.

Tiffany said price increases in some categories had not deterred shoppers.

The company now expects a profit of US$3.50 to US$3.60 per share for the full fiscal year, up 7 cents from its previous forecast range.

Last year, Tiffany’s shares came under attack after it repeatedly lowered its forecasts.

Reuters

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