Tiffany's strong sales in Asia offset US weakness as the brand aims to lure younger shoppers

Tiffany beats Street and gives upbeat forecast
Tiffany beats Street and gives upbeat forecast

Tiffany & Co. reported fourth-quarter earnings Friday that beat expectations, fueled mostly by strong international sales and product price increases.

Same-store sales — a metric closely watched for retail stocks — were unchanged for this quarter, but better than a 0.9 percent decline predicted by analysts. Tiffany also gave an upbeat outlook for 2017, though it admitted it hasn't been pleased with its recent results.

"Although Tiffany is a luxury [brand] ... we've not been pleased with our financial performance," interim Chief Executive Officer Michael Kowalski said on the earnings conference call. "While we were able to realize important improvements in gross margins and generate a healthy level of free cash flow, [U.S.] sales results were disappointing."

Sales in the company's Asia-Pacific business, which includes China and Korea, rose 9 percent to $284 million for the quarter, while sales in Japan rose 15 percent to $185 million.

Tiffany's Americas sales, though, fell 3 percent to $587 million.

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"Although the business is making some progress, it is fair to say that that progress is patchy and does not indicate a company that is back to full health," Neil Saunders, managing director of GlobalData Retail, said in a statement. "Tiffany still has issues in a number of regions, including the Americas and Europe."

Tiffany is "increasingly overlooked by American consumers, especially younger demographics," Saunders explained. The brand should aim to "reestablish its relevance" and change its products, store environments and approach to selling, he said.

Earlier this year, Tiffany tapped Lady Gaga to appear in its first Super Bowl commercial. This was viewed by many as an attempt by the jeweler to build a stronger connection with millennial shoppers.

"The [Tiffany] brand is definitive and iconic, yet continues to push and evolve with the times," 30-year-old Gaga said in a statement.

In its earnings conference call on Friday, Tiffany management said it hopes to launch new products and collections in the coming months, beef up its e-commerce platform and grow global square footage while renovating older stores — a plan that focuses on "newness" and building closer relationships with consumers.

"We want new [jewelry] collections, but they need to be big and they need to be impactful," interim CEO Kowalski added on the call. And Tiffany needs to make sure that existing collections are renewed and that the company continues to "inject energy" into those, he said.

On Friday the New York-based luxury retailer reported adjusted quarterly earnings of $1.45 per share on sales of $1.23 billion, topping Thomson Reuters consensus estimates of $1.38 per share on sales of $1.22 billion.

Shares of Tiffany closed Friday up nearly 3 percent on the heels of the jeweler's quarterly earnings report. The stock hovered around $93 and peaked at a new 52-week intraday high of $94. The stock is now up more than 19 percent for the year and up more than 31 percent over the last 12 months.

Holiday sales slump

As Tiffany employs more resources around product innovation, lighter holiday traffic should come as a red flag and could become a new norm for the luxury jeweler, retail expert Saunders warned.

"While [Thanksgiving to Christmas] remains the most important single period for purchasing, it accounts for a much smaller share of annual sales than it once did," Saunders said. Jewelry isn't at the top of the "Christmas list" anymore, he added.

Earlier this year Tiffany said total U.S. sales for its holiday period were $483 million, down 4 percent from 2015. The jeweler cited "post-election traffic disruption" at its Fifth Avenue store, due to its proximity to Trump Tower, as a reason for the steep decline. This particular New York store accounts for about 10 percent of total company sales.

With security around Trump Tower to remain heightened, Tiffany will plan "somewhat cautiously" for the New York flagship store for 2017, particularly around the holiday season, Chief Financial Officer Mark Erceg said on the earnings call Friday. "But we're not going to share our assumptions with you on that store," he said.

Tiffany & Co. year-to-date performance

Source: FactSet