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Tiffany & Co reported a 30 per cent drop in third-quarter earnings as higher taxes and precious metal and diamond costs cut into margins.
The luxury jeweller also announced it would cut its annual profit forecast for the third time this year, triggering a share tumble of more than 10 per cent in early trading on Thursday.
The company now expects earnings per share of between $3.20 and $3.40 on net sales growth of 5 per cent to 6 per cent, down from its previous estimate of $3.55 to $3.70 on 6 per cent to 7 per cent growth.
Global economic weakness has hampered the seller of diamond rings and high-end watches, along with other luxury brands including Burberry, Mulberry and Harry Winston, all of which have recently reported a sales slowdown.
Michael Kowalski, chief executive of Tiffany, said gross margin was weaker than forecast while the company’s effective tax rate was higher than expected, hitting profits.
Gross margin fell to 54.4 per cent from 57.9 per cent last year as raw material costs jumped 12 per cent. Aside from high precious metal and diamond costs, the company attributed the fall to a sharp drop in sales for affordably priced collections – especially Tiffany silver jewellery lines – which tend to have a higher gross margin.
Net income for the three months ended October 31 was $63.2m, or 49 cents a share, falling from $89.7m, or 70 cents, a year earlier.
Revenue rose 3.8 per cent to $852.7m, below analysts’ estimate of $858.4m.
Comparable store sales in the Americas rose 1 per cent, compared with a 15 per cent jump in the same period last year. Sales at stores open at least a year in the Asia-Pacific region fell by 4 per cent after soaring 36 per cent in the third quarter of 2011.
However, a rise in sales at the New York flagship store and in Europe was credited to an increase in demand for Tiffany’s fine jewellery lines and new materials and stones such as Rubedo and coloured diamonds.
Oliver Chen, analyst at Citi Investment Research, said that these changing spending patterns would be closely monitored by Tiffany as the retailer entered the Christmas season.
“Tiffany customers have altered their spending habits compared to last year. The luxury lines with lower margins are doing well across the board while cheaper collections with higher margins have faltered,” he said.
“While overall the numbers have come in below our expectations, the Christmas and holiday season is still to come and this constitutes 33 per cent of Tiffany’s annual sales revenue. The next quarter will be even more vital than usual for the company.”