No signs of a turnaround for Tiffany's ahead of earnings

Trevir Nath, director of content
Tiffany & Co.
Brent Lewin | Bloomberg | Getty Images

The retail sector has taken a beating this season. Upscale retailers have seen earnings and share prices plummet as demand for luxury goods continues to decline. In the past, luxury items were immune to economic conditions, but those days might be long gone. We have already seen weak results this quarter from Nordstrom and Ralph Lauren, highlighted by negative growth on both the top and bottom line.

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Tomorrow's report out of Tiffany's hopes to buck the current trends and set a new standard for high-end retailers reporting in the next month, such as Movado Group, Michael Kors and Lululemon, to name a few.

So far this year, Tiffany's has shown no signs that it can turn things around. Shares are down nearly 15 percent since January and nearly 26 percent in the last 12 months. Earnings have been just as bad, posting negative growth for four consecutive quarters. In its Q4 analyst call, Tiffany's guided similar results for the first quarter and fiscal year. This includes minimal growth on a constant currency basis with earnings ranging from flat to a mid-single-digit decline.

Analysts are expecting earnings per share of 69 cents on $922.68 million in revenue, according to the Estimize consensus data. Compared with a year earlier, this reflects a 14 percent decline on the bottom line and 4 percent on the top. Earnings estimates have been cut 11 percent since its last report, on negative sentiment toward earnings this quarter.

In the past year, Tiffany's and its peers have been hit hard from the strong U.S. dollar, changing consumer spending trends and overall economic volatility. Currency headwinds have adversely impacted both non-U.S. sales and tourist spending in the United States. Meanwhile, mounting consumer debt has contributed to the declining demand for luxury goods. Between rent, student loans and credit card debt, purchasing jewelry has become less of a priority for U.S. consumers.

Efforts from Tiffany's to increase its omnichannel platform and expand sales have come with mixed results. Sites like eBay and other discount retailers have made it difficult for Tiffany's to sell its products online at full price, thereby hurting margins.

New store expansion remains Tiffany's lone bright spot. Plans to open new stores domestically and internationally should bode well. A large part of the brand is built on the in-store experience rather than the smaller online business. This has been predominantly true with global consumers. On a constant currency basis, revenue and comparable store sales continue to grow across Asia, Japan and Europe.

For the time being, though, dwindling top and bottom-line performance remains a concern for the company, its investors, and the overall luxury retail space.

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