Jewelry shines in turbulent economy
Tiffany and Neiman Marcus have seen robust sales, but Blue Nile struggles with unique problems.
Neiman Marcus and Tiffany (TIF), names synonymous with luxury, have benefited from robust jewelry sales. Earlier this month, Neiman noted that fiscal first quarter sales gained 8.2% (8% on a comparable basis) thanks in part to sales of jewelry.
Tiffany, which gets about 91% of its revenue from jewelry, is expected to do even better. Wall Street analysts figure revenue will rise 17.7% to $802.14 million in the New York chain's latest quarter. Neiman Marcus reports results Monday with Tiffany coming the next day.
Zale (ZLC), a jewelry retailer with 1,820 stores in the United States, Canada and Puerto Rico, recently reported a better-than-expected second quarter loss of $32 million as same-store sales jumped 5.8%. Its operating margin also improved by 640 basis points. Shares of Zale are expected to more than double to $6.75 over the next year.
Signet Jewelers (SIG), parent of the Kay Jewelers chain, also posted better-than-expected results fueled by a 14% gain in sales at its flagship business. CEO Mike Barnes remarked that the company is "well positioned for the remainder of the holiday season." Wall Street is optimistic as well, placing a $57.25 price target on the shares, which recently traded for $41.56.
Another jewelry retailer, Blue Nile (NILE), wasn't so fortunate. Shares of the online retailer have been hammered, plunging more than 40% after reporting worse-than expected earnings on Nov. 8. CEO Diane Irvin resigned earlier this month. Her successor, Vijay Talwar, further disappointed Wall Street with a lackluster earnings forecast.
Blue Nile's problems, though, appear to be company specific. Analysts have argued that the company needs to offer a broader product line and try to win more repeat business. Even with its problems, Blue Nile reported an 11% gain in third-quarter sales.
Though unemployment remains high and the housing market remains a mess, at least some consumers with large amounts of disposable incomes still buy expensive items such as jewelry. According to market researcher Ken Gassman, data from the Commerce Department shows that jewelry sales were up 14.6% in September despite rising prices for precious metals. This year, sales measured by dollar volume were up 12%.
If trends continue, sales for the year will rise as much as 14%. Whether the trend is sustainable is not clear.
In an article in trade journal National Jeweler, Gassman writes that he is skeptical of the Commerce Department data. "A gain in the mid-to-high single-digit range seems much more reasonable to us," he says. "Further, over the next couple of years, we believe that jewelry sales gains will settle in at about 4 percent or so annually, assuming that inflation moderates to historic levels."
Still, the resilience of the jewelery sector during the current economic uncertainty is remarkable.
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After Tuesday's rally, expect a big raid no matter the news. That's probably the safest way to play it ahead of the Fed.
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