NEW YORK – Tiffany & Co. on Wednesday reported third-quarter earnings that topped Wall Street expectations, but the luxury goods retailer warned of job cuts and lowered its 2008 outlook as consumers scale back on spending amid a tough economy.
Tighter credit and widespread layoffs have caused many consumers to cut back on non-essentials and the forecast is gloomy for retail's crucial holiday shopping season. Tiffany's strong international sales had typically helped offset recent weakness in the U.S., but the company warns that Europe and Asia remain "challenging."
The weak outlook drove Tiffany shares down as low as $18.61 in early trading, but the stock rose 8 cents to close at $20.91 on nearly double average volume. That's well less than half the $51.13 the stock traded at a year ago.
For the three months ended Oct. 31, the New York-based jeweler earned $43.8 million, or 35 cents per share, less than half its year-ago profit of $101.5 million, or 73 cents per share, which included a gain of 48 cents per share on the sale-leaseback of its Tokyo flagship store. Excluding one-time items, profit actually rose 13 percent in the latest period.
Sales slipped 1 percent to $618.2 million as weak U.S. markets offset increased sales abroad.
The results beat analysts' average profit estimate of 25 cents per share, according to a Thomson Reuters poll, though sales came in shy of Wall Street's $643.8 million forecast.
Mark Aaron, vice president of investor relations, said Tiffany faced a tough economy, frozen credit markets and tumbling equity markets.
"All of this dramatically affected consumer confidence and led to a further pullback in spending in the U.S., as well as initial softening in some of our non-U.S. markets," said Aaron, who spoke to analysts on a conference call.
Sales fell 6 percent at Tiffany's nine stores in New York, including the company's Wall Street store that opened last year in lower Manhattan. A severe market slump and massive layoffs in the financial sector have many jewelers struggling to ring up pricey items. With Wall Street bonuses likely decimated if given at all this year, jewelry stores can't count on bankers to splurge.
Sales in Tiffany's Americas region declined 7 percent to $331.8 million, with "substantial" decreases seen in the number of transactions in every region of the U.S. Same-store sales, or sales at stores open at least one year, dropped 14 percent in the U.S.
Sales at Tiffany's heavily tourist-trafficked New York flagship store, which accounts for 10 percent of the company's overall sales, declined 5 percent during the quarter. That's still better than October's sales plunge of 17 percent at the location.
Overseas, revenue in the Asia-Pacific region rose 3 percent to $206 million, and sales in Europe gained 16 percent to $58.2 million, but the company expects "challenging conditions" in these regions going forward.
Cowen & Co. analyst Laura Champine, who rates shares of Tiffany "Underperform," said inventory in the third quarter jumped 12 percent, which does not bode well for the holiday season, when jewelers record a large portion of sales.
Looking ahead, Tiffany lowered its 2008 earnings outlook to $2.30 to $2.50 per share, with sales expected to be flat to down 2 percent. That's well below analysts' $2.58-per-share outlook and the company's previous estimated range of $2.82 to $2.92.
"It is impossible to know when consumer confidence will be restored," Chief Executive Michael J. Kowalski said.
Kowalski said U.S. sales have further softened this month. With weak consumer demand expected to continue into the crucial holiday shopping season, the company plans to reduce staffing and trim capital spending, including scaling back on new store openings next year. Tiffany did not specify how many jobs it plans to cut.
For the fourth quarter, Kowalski said U.S. same-store sales will drop between 25 percent and 35 percent, with total worldwide sales sliding between 13 percent to 20 percent. Based on fourth-quarter sales of $1.05 billion a year ago, Tiffany expects sales between $917.3 million and $843.7 million, below the $1.05 billion expected by analysts.
Despite weakness in high-end luxury spending, some analysts think Tiffany won't shift its product mix away from fancier diamond and precious gem jewelry to focus mainly on lower-priced silver items and classic pieces.
"I don't think they'll do that," said Stephanie Hoff, senior research analyst with Edward Jones, in a phone interview. "I think they will keep things balanced. I imagine they will watch sales trends and gravitate toward what sells."
AP Business Writer Jennifer Malloy Zonnas in New York contributed to this story.