Tiffany Shares Soar After Luxury Slump Shows Signs of Easing

(Bloomberg) -- Tiffany & Co. rose the most in more than three months after improving sales in China and Japan signaled that the worst of the global luxury market’s downturn may be over.

Better-than-expected earnings followed upbeat reports from LVMH and Kering SA, the owner of Gucci. Still, not everyone in the industry is optimistic. Richemont, the maker of Cartier jewelry, reported a 51 percent drop in first-half profit this month, and Swiss watch exports are suffering their worst slide in seven years.

Tiffany had been contending with weaker spending in Asia and slower tourism after terrorist attacks in Paris. The jeweler responded by introducing more products and trying to keep its costs and inventory in check.

“The results are definitely better,” said Seema Shah, an analyst at Bloomberg Intelligence. “It’s a good sign.”

The shares climbed as much as 8 percent to $84.40 in New York, the biggest intraday gain since Aug. 25. Tiffany had advanced 2.4 percent this year through Monday.

Earnings were 76 cents a share in the period ended Oct. 31, the New York-based company said on Tuesday. Analysts projected 68 cents, on average. Tiffany maintained its forecast that earnings per share would decline by a mid-single-digit percentage this year and that global net sales would fall by a low-single-digit percentage.

While earnings have improved, Tiffany is remaining cautious because of “highly volatile” global economies and the increased security around New York’s Trump Tower, which may hurt the company’s adjacent Fifth Avenue store, Chief Financial Officer Mark Erceg said on a conference call. Next year’s elections in Hong Kong, one of Tiffany’s largest markets, also may weigh on tourism and spending, he said.

No Conclusion

“We’d like to see several quarters of sales acceleration before making any conclusion about turning global luxury spending,” Erceg said.

Revenue rose 1.2 percent to $949.3 million last quarter, topping analysts’ $922.6 million average estimate. Sales at the company’s stores open for more than 12 months fell 3 percent on a constant-currency basis. Analysts had projected sales by that measure would slip 4.1 percent.

Tiffany’s Asian divisions led the gains, with net sales in the Asia-Pacific unit climbing about 4 percent to $247 million, driven by double-digit growth in China. Revenue in the Japan division increased 13 percent to $150 million, helped by the strengthening yen.

Americas Sales

In the Americas, net sales dropped 2 percent. Tiffany said that its flagship New York store has experienced “adverse” traffic effects and “continued sales softness.” The division has also been pressured by lower spending from local consumers because of the domestic economic and political uncertainties, Chief Executive Officer Frederic Cumenal said on the conference call. However, the Americas did see a gain in tourist spending, he said.

Sales fell 10 percent in Europe, the company’s worst regional performance. Europe’s luxury industry has been grappling with a slowdown caused by sluggish demand from Asian travelers, as well as recent terrorist attacks. The U.K. was the bright spot in the region: Tourists increased their spending to take advantage of a weaker pound after Britain’s decision to leave the European Union. Tiffany recently increased prices by single digits in the U.K. to partly offset the effect of the softening currency.

Despite the early signs of a rebound, risks remain for Tiffany, Bloomberg Intelligence’s Shah said. The company could be hurt if the Trump administration decides on a more closed economy, she said.

“I’m still a little concerned about the Americas,” she said. “I don’t think the global headwinds have subsided.”

--With assistance from Paul Jarvis To contact the reporter on this story: Stephanie Wong in New York at swong139@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net.