Tiffany, Signet temper expectations
NEW YORK (MarketWatch) -- Europe's debt crisis, China's slowing economy and wary U.S. shoppers prompted
Tiffany also reported a disappointing first-quarter profit, citing disappointing sales in the U.S. and a drop in business at its New York flagship store, which accounted for about 8% of its total sales.
After earlier reporting weak holiday sales in the U.S. and Europe, Tiffany eased investor worries in March by giving an upbeat outlook pegged to stronger January sales and growth in Asia and the Americas.
Conditions didn't pan out as expected, however, prompting Thursday's downward revision.
Tiffany also said spending by financial sector employees has continued to slow while "substantial competitive discounting" remains a problem.
Meanwhile, shoppers balked at entry-level silver jewelry after Tiffany raised prices to offset the rising cost of materials, from precious metals to diamonds.
While visitors from abroad still drove sales in the Americas, Tiffany said it saw a drop in sales, especially to European tourists, at its New York store.
As the euro zone crisis rattles Europe, retailers and brands including watchmaker
Still, not all with European exposure are sharing similar pain. Shares of
Tiffany's European luxury counterparts also have posted overall strong result with Cartier parent Richemont and LVMH reporting better-than-expected sales and citing continued growth in the U.S., analysts said.
"The market is continuing to have trouble reconciling (Tiffany's) decelerating business trends within an otherwise strong luxury sector," ISI Group analyst Omar Saad said. "Visibility remains allusive."
Tiffany's profit in the quarter ended April 30 rose slightly to $81.5 million, or 64 cents a share, from $81.1 million, or 63 cents a share, ia year ago.
Sales rose 8% to $819 million. Comparable sales minus currency translations rose 4%.
Profit would have declined 5% excluding a 4-cent year-earlier charge to relocate its New York headquarters. Wall Street analysts expected the company would earn 69 cents a share on $817 million in sales, according to FactSet.
Tiffany blamed the shortfall on weak sales in April, with the Americas accounting entirely for the missed targets. Sales elsewhere were in line with company expectations.
Tiffany cut its full-year earnings outlook to $3.70 to $3.80 a share from $3.95 to $4.05 a share. Analysts were looking for profit of $3.98 a share. Tiffany's also revised its sales growth forecast to 7% to 8% from 10%.
"Although we are very early into the second quarter, worldwide sales are currently increasing by a low-single-digit percentage, reflecting difficult year-over-year comparisons and decelerating rates of economic growth in many countries," said Tiffany Chief Executive Michael Kowalski.
In the Americas, which account for slightly less than half of all sales, Tiffany's first-quarter sales rose 3% to $386 million. Excluding currency translations, comparable-store sales were flat, with a 1% increase at comparable branch stores and a 4% drop in the New York flagship store.
Internet and catalog sales in the Americas rose 1%.
Sales in the Asia-Pacific region increased 17% to $195 million. Excluding currency translations, comparable-store sales rose 10%.
In Japan, sales rose 15% to $142 million while comparable-store sales minus currency impact rose 12%.
Sales in Europe increased 3% to $88 million. Constant-dollar same-store sales were flat with no meaningful difference between Britain and the rest of Europe.
First-quarter gross margin narrowed to 57.3% from 58.3% because of higher materials costs. In an encouraging note, Tiffany said it's seen a stabilization of precious metal and diamond prices in recent months that should bolster its gross margin by the fourth quarter and into next year.
"Weaker gross margins suggest to us that amid continued worldwide economic turmoil (Tiffany) has slowed price increases," said Oppenheimer & Co. analyst Brian Nagel. "Input costs are easing and very challenging sales comparisons will soon moderate. Management guidance is now set at a more attainable level."
Selling, general and administrative expenses rose 9% on higher labor, store lease and marketing costs.
For Signet, it forecast a second-quarter profit of 78 cents to 84 cents a share, below the 89-cent average estimate of analysts surveyed by FactSet.
Signet's profit in the first quarter rose to $82.5 million, or 96 cents a share, from $75.4 million, or 87 cents a share, a year earlier.
Sales rose to $900 million from $887.3 million. Analysts were looking for profit of 91 cents a share on sales of $911.3 million.