Bloomberg News

Tiffany Drops After Forecasting Slower Sales Growth

November 30, 2011

(Updates with closing share prices in second paragraph.)

Nov. 29 (Bloomberg) -- Tiffany & Co. fell the most in almost four months after the luxury jewelry retailer forecast slower sales growth in the fourth quarter and implied profit would be less than analysts’ estimates.

Tiffany dropped 8.7 percent to $67.22, the biggest drop since Aug. 8, at the close in New York. Coach Inc., the largest U.S. luxury handbag maker, slid 3.1 percent to $60.20.

Tiffany, the world’s second-largest luxury jewelry retailer, said sales growth in the fourth quarter will slow because of weakness in the eastern U.S. and Europe, where the region’s sovereign debt crisis is hindering investors’ confidence. The company also said that a key measure of profitability shrank as it sold more of its highest-priced diamond jewelry, which yields a lower gross margin.

“Management is incorporating plenty of conservatism in the outlook to acknowledge where the constraints lie with a shaky Europe,” Matt Arnold, an analyst with St. Louis-based Edward Jones & Co., said in an interview. “All the focus is on the outlook.”

Based on the full-year profit forecast the company gave today, fourth-quarter earnings may rise to as much as $1.58 a share, New York-based Tiffany said in a statement today. Analysts had projected $1.63, the average of estimates compiled by Bloomberg.

Gross Margin

Sales during the period will grow in the “low-teens” in percentage terms after a 21 percent jump in the previous quarter. Sales will have a “low double digit” gain in the Americas, Chief Financial Officer Patrick McGuiness said on a conference call today.

Gross margin, or the percentage of sales left after the cost of goods sold, shrank to 57.9 percent from 58.5 percent a year earlier. David Schick, an analyst with Stifel Nicolaus & Co. in Baltimore, had estimated 59 percent.

“The luxury consumer is slowing down as you might expect given the financial market turmoil,” Schick said in a telephone interview. “There was a lot of momentum in sales in the third quarter and that has clearly slowed down.”

Net income in the three months ended Oct. 31 climbed 63 percent to $89.7 million, or 70 cents a share, from $55.1 million, or 43 cents, a year earlier, Tiffany said. Analysts projected 61 cents, the average of estimates compiled by Bloomberg.

‘Good Quarter’

Profit in the year ending January 2012 will be as much as $3.80 a share, up from a previous forecast of a maximum of $3.75, Tiffany said. Analysts had projected $3.74, the average of 19 estimates. It reiterated its forecast for a “high teens” increase in annual sales.

Third-quarter sales advanced to $821.8 million, exceeding the $803.8 million average of 13 analysts’ estimates.

“It doesn’t look like the stock is positioned to get any credit for what was a very good quarter,” Arnold said. “There is plenty to like if you are a longer-term owner of this business,” said Arnold, who has a “buy” rating on the shares.

Cie. Financiere Richemont SA is the world’s largest luxury jewelry maker.

(Tiffany held a conference call at 8:30 a.m. New York time today to discuss results. To listen visit LIVE {<GO>})

--Editors: James Callan, Kevin Orland

To contact the reporter on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net;

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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