Can Tiffany restore its lost luster?

Shares of the luxury retailer tank after it gives disappointing guidance for the current quarter.

By Jonathan Berr Nov 29, 2011 4:37PM

Image: Wedding ring (© Jamie Grill/Photolibrary/Photolibrary)Updated: 6:27 p.m. ET

 

Shares of Tiffany & Co. (TIF), a name synonymous with luxury, slumped Tuesday after the company spooked Wall Street with talk of "continued short-term economic challenges and uncertainties."

The stock was down 8.7% to $67.22 after Tiffany gave disappointing fourth-quarter guidance of $1.48 to $1.58 a share in earnings, way below the $1.63 analysts expected. 

The decline, the biggest in more than four years, underscored the unease investors have about consumer spending as the holiday season gets under way. Wealthy people are spending more this holiday season, buoyed by the stock market's strong performance. A survey released earlier this year by American Express Publishing and Harrison Group forecast that luxury-goods spending would rise 8% to $359 billion in 2011. Other polls present a more optimistic view.

Indeed, Tiffany continues to do well amidst continued economic uncertainty. The wealthy are spending more on products such as $3,100 men's watches and $480 sunglasses.

Net income in the quarter ended Oct. 31 rose 63% to $89.7 million, or 70 cents a share, beating Wall Street consensus estimates of 61 cents. Sales jumped 21% to $821.8 million, fueled by gains at its stores around the world, beating analyst forecasts of $803.8 million.

Tiffany reaffirmed its 2011 earnings guidance as holiday sales were coming in as expected. For 2012, it sees earnings of $3.70 to $3.80 a share, up from an early forecast of $3.65 to $3.75.  The annual sales growth forecast was reiterated in the range of the "high teens."

"It doesn’t look like the stock is positioned to get any credit for what was a very good quarter," Matt Arnold, an analyst with Edward Jones & Co., said in an interview with Bloomberg News. “There is plenty to like if you are a longer-term owner of this business."

Arnold is right. Tiffany is not retrenching. The New York chain plans to add 14 net company-operated stores, including six in the Americas, in the 2012 fiscal year. Wall Street remains optimistic about the retailer as well giving an average price target of $83.17.

Though rich people are spending, many other consumers remain nervous about their futures.

In 2009 and 2010, more than a third of American consumers said the economy was getting better during Black Friday week, according to Gallup. But this year, that dropped to less than one in four.

Consumer sentiment can turn on a dime, even for the wealthy.

--Follow Jonathan Berr on Twitter @jdberr.




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