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Can Tiffany Withstand an Economic Slowdown?

Tiffany
AP
Tiffany

Consumer confidence is slipping. Economists are revising down economic growth projections for the second half of the year.

And JPMorgan Chase analysts just raised their earnings estimates on luxury retailed Tiffany & Co. from $3.35 to $3.80 a share to $3.54 to $3.80 a share. Their price target has gone from $62 a share to $75 a share.

Sense a disconnect?

Prior to the financial crisis, it wasn’t uncommon for analysts and executives of luxury retailers to claim that luxury could withstand economic downturns because their customers were more resilient.

For much of 2008, for example, luxury retailers appeared to be living up to these expectations. A sagging dollar boosted tourism from wealthy European countries, boosting sales.

Tiffany , in particular, expected a strong fourth quarter for 2008.

They couldn’t have been more wrong.

Sales globally declined 20 percent in the fourth quarter. In the United States, sales declined 31 percent.

Tiffany’s customers were as resilient as expected. Price-slashing competitors hurt Tiffany’s bottom line as customers decided the premium for that little blue box was too costly.

Of course, that decline was strongly reflective of the financial crisis—which sent even wealthy Americans into money-in-the-mattress mode. If the downturn in the economy is not as sharply felt by the well-off, Tiffany may be a spot of strength in an otherwise bleak investing environment.

But certain things that helped luxury retailers—such as the strength of European buyers—might be absent this time around. Europe is deeply embroiled in its own economic crisis, and the dollar may be poised for levels that would make tourist buying less attractive.

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