Tiffany's lackluster earnings sparkle through

Middle-class consumers should be heartened by the luxury retailer's results.

By Jonathan Berr Aug 27, 2012 12:43PM
Shares of Tiffany & Co. (TIF), whose name has been synonymous with luxury for more than a century, are trading up almost 7% after the jewelry retailer posted quarterly results that were not as awful as Wall Street analysts had feared. 

Investors, even those living on a budget, need to remember that as Tiffany goes, so goes America -- in a roundabout way.

Net income rose 2% to $91.8 million, or 72 cents a share, as the company held the line on costs, with gains in Japan offsetting declines in the U.S. and Europe. Sales rose 1.6% to $887 million. Same-store sales, a key metric, fell 1%, which is not as bad as some analysts had feared. Tiffany was expected to earn 73 cents on revenue of $890.9 million.

The retailer also cut its profit outlook for the year to between $3.55 and $3.70 a share, versus an earlier projection of between $3.70 and $3.80. Wall Street expectations are for $3.64. Tiffany slashed its outlook for sales growth for the year to between 6% and 7%, from between 7% and 8%, as it plans to add 28 company-operated stores, including 13 in the Americas, eight in Asia-Pacific and two in Europe.

"Longer term, our management team remains enthusiastic about the opportunities we are pursuing in store expansion, product introductions and marketing that will contribute to solid growth," chief financial officer Patrick McGuiness said during the earnings conference call.

Tiffany's optimism is understandable. U.S. consumer confidence was unexpectedly higher in August, though still hardly robust. The latest Gallup data show that 60% of Americans believe the economy is getting worse.

However, there are some bright spots for Tiffany.

First, rough diamond prices fell 13% in the second quarter. They should remain stable if economic growth doesn't falter more than expected. Further, gold and silver prices are expected to decline this year because of soft demand in India, a major gold buyer, among other reasons.

In the darkest days of the Great Recession, the rich were reportedly reluctant to flaunt their wealth. That shyness is starting to fade as the economy continues its slow recovery. That means some consumers will not only spend $280,000 on a pair of Tiffany Lucinda diamond earnings but may even wear them in public.

Though most Americans could never afford such expensive baubles, they can take comfort in knowing that those who can afford them are buying them. If wealthy consumers spend, that will encourage those of more modest means to follow suit. Slowly but surely, the economic recovery will gain momentum. Growth is still so moribund that many Americans are not noticing much of a difference.

Jonathan Berr does not own shares of the listed companies. Follow him on Twitter@jdberr.

Tags: TIF


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