(IDEX Online) - Tiffany & Co.'s share price ended the day down almost 12% on Wednesday with analysts disappointed that it missed revenue and same store sales targets.
Tiffany attributed the performance to lower demand from foreign tourists, particularly from China, who spent less in the U.S. and in Hong Kong.
In the third quarter, worldwide net sales increased 4% to $1.0 billion - below the $1.05 billion target expected by analysts.
Same store sales rose by 3%, compared with the 5.3% the market expected.
For the first nine months of the fiscal year, worldwide net sales rose 10% to $3.1 billion, due to increased sales in all regions and product categories, and comparable sales rose 7%. Net earnings rose 24% to $382 million, from $308 million a year ago.
CEO Alessandro Bogliolo said, "It is worth noting that in the third quarter our sales attributed to local customers continued to grow at a strong rate worldwide and were positive in every region, with particularly strong growth in mainland China. Jewelry volumes also increased in the quarter and year to date. This resulted in mid-single-digit net sales growth in the quarter and even higher growth year-to-date, despite lower-than-expected spending in the third quarter attributed to Chinese tourists in the U.S. and Hong Kong and lower wholesale travel-retail sales in Korea.
"Our full year outlook is unchanged. We believe we have substantial growth opportunities to pursue as a geographically-diversified luxury brand and are not distracted by external factors, such as the negative effects of a strong U.S. dollar or fluctuations in tourist spending. Our teams are truly excited about the activities planned for the holiday season and are deeply committed to achieving the long-term growth potential of this legendary brand."
Net sales by region were as follows:
In the Americas, total net sales increased 5% to $442 million in the third quarter and 7% to $1.3 billion in the year-to-date; comparable sales increased 5% and 7%, respectively. Management attributed that growth in both periods to higher spending by local customers, partly offset by lower spending attributed to foreign tourists in the third quarter. On a constant-exchange-rate basis, total sales rose 6% in the third quarter and 7% in the year-to-date, and comparable sales rose 5% and 7%, respectively.
In Asia-Pacific, total net sales rose 4% to $294 million in the third quarter, highlighted by strong sales growth in mainland China, along with mixed results elsewhere which included a decline in wholesale travel-retail sales in Korea. In the year-to-date, total net sales rose 19% to $923 million, reflecting growth in most markets which included increased wholesale travel-retail sales; comparable store sales rose 1% in the quarter and 8% in the year-to-date. Management attributed the sales growth in the year-to-date to higher spending by local customers and foreign tourists, while sales growth in the third quarter was entirely attributed to local customers. On a constant-exchange-rate basis, total sales increased 6% and 18% in the third quarter and year-to-date, respectively, and comparable sales increased 4% and 7%, respectively.
In Japan, total net sales rose 2% to $142 million in the third quarter and 10% to $447 million in the year-to-date; comparable sales rose 1% and 8%, respectively. Management attributed the sales growth to higher spending by local customers and foreign tourists. On a constant-exchange-rate basis, total sales increased 3% in the third quarter and 8% in the year-to-date, and comparable sales increased 2% and 6%, respectively.
In Europe, total net sales of $114 million in the third quarter and $343 million in the year-to-date were 3% and 6%, respectively, above the prior year, with varied results by country, and with higher spending attributed to local customers more than offsetting lower sales attributed to foreign tourists; comparable sales declined 3% in the quarter and were unchanged in the year-to-date, which also reflected the negative effect from new stores on existing store sales. On a constant-exchange-rate basis, total sales increased 5% in the third quarter and 3% in the year-to-date; comparable sales were unchanged in the third quarter and declined 4% in the year-to-date.
Other net sales of $20 million in the third quarter and $66 million in the year-to-date were below the prior year by 7% and 17%, respectively, primarily reflecting reductions in wholesale sales of diamonds.
Tiffany has opened nine company-operated stores in the year-to-date and closed three. At October 31, 2018, the Company operated 321 stores (124 in the Americas, 89 in Asia-Pacific, 55 in Japan, 48 in Europe, and five in the UAE), versus 315 stores a year ago (125 in the Americas, 86 in Asia-Pacific, 54 in Japan, 46 in Europe, and four in the UAE).
Selling, general and administrative (SG&A) expenses increased 15% in both the third quarter and year-to-date. The growth in both periods reflected increased marketing spending, as well as higher labor and incentive compensation, store occupancy and depreciation expenses. In addition to the higher marketing spending, the company also increased strategic investment spending in the areas of technology, visual merchandising, digital and store presentations. Management believes this higher level of investment spending, which began in the second quarter and is expected to continue for the remainder of the year, is necessary to generate long-term growth.
The effective income tax rates of 17.1% in the third quarter and 21.6% in the year-to-date were lower than the prior year's rates of 33.4% and 32.9%, respectively. The declines largely reflected the enactment in December 2017 of the U.S. Tax Cuts and Jobs Act, as well as the recognition of income tax benefits related to the filing of the Company's 2017 tax returns. The third quarter also reflected an income tax benefit related to additional guidance issued in respect of the 2017 Tax Act during the third quarter. The year-to-date also reflected the recognition of an income tax benefit from the release of tax reserves due to a lapse in a statute of limitations during the second quarter.