Tiffany struggles as Mainlanders baulk
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If Tiffany was hoping for some holiday respite following a year of negative numbers it will be sorely disappointed by its latest results.
Indeed, the pace of decline has actually accelerated since the third quarter, which covered the three months up until the end of October. Given the significant opportunity that the holiday season affords this is a worrying outcome.
Reported in US dollars, worldwide net sales of $961 million were 6 per cent lower than the prior year.
Despite some solid growth in China and Japan – the latter coming off weak comparatives – the poor numbers out of Hong Kong, which has suffered from a decline in visitors from the Chinese mainland, pulled down the regional result.
In the Asia-Pacific region, on a constant-exchange-rate basis total sales and comparable store sales declined 6 per cent and 9 per cent, respectively. A continuation of strong sales growth in China was more than offset by significant weakness in Hong Kong and Singapore, with varying performance in other markets. Reported in US dollars, total sales of $187 million were 11 per cent below the prior year.
In Japan, on a constant-exchange-rate basis total sales increased 12 per cent and comparable store sales rose 10 per cent, reflecting higher sales to local customers and foreign tourists. Reported in US dollars, total sales rose 9 per cent to $123 million.
Globally, as it did throughout 2015, Tiffany has pinned the blame for its sales declines on the strong dollar. There is truth in such an assertion, although it is not the whole truth. This is evidenced by the fact that even on a constant currency basis worldwide sales still fell by 3 per cent in total and by 5 per cent in comparable terms. Clearly, there are forces other than fluctuating exchange rates at play.
“Reported in US dollars, worldwide net sales of $961 million were 6 per cent lower than the prior year.”
The Americas is a case in point. Although the magnitude of the sales decline in the region was broadly similar to that posted last quarter, it still represents a marked deterioration in trade. The claim that tourist spending on jewellery in key locations like New York was down thanks to an unfavorable exchange rate has some validity, even if it sits somewhat uncomfortably with MasterCard data that shows 2015 was a record year for international visitor spending in the Big Apple. However, sales were not just down at Tiffany’s stores in tourist destinations, they were down across most of the US.
One of the factors at play, at least in the US, is a shift in holiday purchasing. Prior to the economic downturn of 2008 the period between Thanksgiving and Christmas was key for jewellery buying. Today, while it remains the most important single period for purchasing, it accounts for a much smaller share of annual sales than it once did. Jewellery is no longer at the top of the Christmas list. For a brand like Tiffany, where lavish gifting is an important driver of buying, such a trend is distinctly unhelpful.
As important as this factor may be, it is exacerbated by the more competitive environment for jewellery and the rise of other brands. Against this backdrop Tiffany has lost some of its relevance, especially to more moderate spending shoppers. The company has tried to arrest this development with new collections such as Tiffany T, but the results to date have been lacklustre.
These brand issues are somewhat less relevant to the Asian markets where Tiffany is still seen as a hallmark of fine jewellery.
The consequence of a weak holiday period is that final quarter profits will now come in lower than previous guidance.
Tiffany is ending its fiscal year with very little sparkle.
Questions & Answers
Q.Which specific Asian markets experienced growth for Tiffany during this period?
Which specific Asian markets experienced growth for Tiffany during this period?
Despite overall declines in the Asia-Pacific region, Tiffany saw solid growth in China and Japan. Japan’s growth was partly due to weak comparatives, with sales to local customers and foreign tourists increasing.
Q.What reason does Tiffany give for its global sales declines, and is this fully supported by the figures?
What reason does Tiffany give for its global sales declines, and is this fully supported by the figures?
Tiffany attributes its sales declines to the strong dollar. However, worldwide sales still fell by 3 per cent in total and 5 per cent in comparable terms even on a constant currency basis, suggesting other factors are also at play.
Q.What factors are impacting Tiffany's sales performance within the United States?
What factors are impacting Tiffany's sales performance within the United States?
In the US, a shift in holiday purchasing patterns means jewellery accounts for a smaller share of annual sales. Also, a more competitive environment and the rise of other brands are affecting Tiffany's relevance.
Q.How did the recent holiday period impact Tiffany's financial outlook for the final quarter?
How did the recent holiday period impact Tiffany's financial outlook for the final quarter?
The weak holiday period means that Tiffany's final quarter profits will come in lower than the company's previous guidance, resulting in a less positive end to its fiscal year.
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