Tiffany says protests ‘taking a toll’ on its Hong Kong business as it reports drop in net sales in second quarter
- Sales fell 3 per cent, net earnings dropped 6 per cent in second quarter
- American jewellery seller says it lost nearly six selling days due to unplanned store closures
American jeweller Tiffany & Co. warned it sees a sluggish market in Hong Kong going forward as the social unrest in the city cut into its worldwide net sales in the second quarter.
Global reported sales decreased 3 per cent and net earnings fell 6 per cent in the second quarter, on the back of a significant decline in both sales attributed to Chinese and all other tourists and business disruption in Hong Kong, the company said in their quarterly earnings report.
“In Hong Kong, where we have 10 stores and which is our fourth biggest market relative to total sales, only after the United States, Japan and mainland China, [we have] been presented with a unique set of challenges,” said chief executive Alessandro Bogliolo on a conference call to discuss financial results for the second quarter.
“Obviously, we hope for a quick and peaceful resolution to the unrest being experienced there, but in the meantime, we must acknowledge that the current situation is taking a toll on our business. In fact, we estimate that during the second quarter we lost nearly six full selling days due to unplanned store closures,” said Bogliolo.
The Hong Kong Retail Management Association last week said most of its members suffered a 50 per cent sales drop in the first three weeks of August. Sales dropped 6.7 per cent in June year-on-year.
It warned many retailers will have to let go of staff or go under if the unrest worsens, and called on landlords to charge half rents for six months.
“Over the past few months, large [retail] groups or Grade A malls that have traditionally been popular among tourists have taken a big hit in terms of sales, and they may try to seek their landlords for help,” said Cynthia Ng, director of retail services at Colliers.
“[Food and beverages] along high streets with single ownership landlords have also been affected by the weekly protests, because they aren’t able to open for business but they still need to pay their rent,” said Ng.
“Luxury brands that perform well when the market is good with a lot of turnover rent may try to negotiate with their landlords to see if there is a way for both parties to get through this short period of turmoil, such as through different rental schemes,” said Ng.
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“We’ve been talking to many retailers over the past few days. Some luxury stores are planning to downsize,” said Michael Chik Pa-fai, managing director of Sheraton Valuers.
“For now, chain stores won’t make such a loss that they will go out of business, but they will close some shops,” Chik added.
Tiffany & Co.’s net earnings in the second quarter declined 6 per cent to US$136 million from US$145 million in the previous year.
Worldwide net sales in the second quarter declined 3 per cent to US$1,048.5 million from US$1,075.9 million in the previous year.
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Net sales in the Asia-Pacific fell one per cent to US$298 million in the second quarter, reflecting strong growth in mainland China, softness in Hong Kong and mixed performance in other markets in the Asia-Pacific region, the company said in their earnings report.
However, the group once again posted strong double-digit growth with local customers in mainland China, the company said.
This comes as luxury brands like Prada are opening more stores in China, leading to a decline in mainland tourists flocking to Hong Kong for luxury goods.
“If, for example, the ongoing unrest in Hong Kong persists much longer at its current rate, we may find ourselves towards the lower end of our full year reported sales and EPS guidance range. And if the situation were to deteriorate even further, or if the current level of unrest is maintained for the balance of the fiscal year, we may find ourselves toward the bottom end of our ranges,” said chief financial officer Marc Erceg in the conference call.
