Tiffany Slides After Jeweler Reports Surprise Sales Decline

(Bloomberg) -- Valentine’s Day did little to help Tiffany & Co. stave off a broader retail slump.

The New York-based jeweler posted an unexpected sales decline in the first quarter, with sluggish demand in the Americas and Asia weighing on results. That sent the shares down the most in more than two years in trading Wednesday.

The surprise sales drop, which deteriorated from the fourth quarter, signals that Tiffany faces a slow recovery from a tourism slump and shrinking foot traffic in the U.S. To boost sales and draw younger customers, the company has been renovating stores and introducing new designs, such as the HardWear collection promoted by singer Lady Gaga.

Tiffany blamed slow results in the Americas region on “lower spending by both foreign tourists and local customers.”

“It felt maybe they were making some headway, but sales were disappointing, which is really what matters to the market right now,” said Brian Yarbrough, an analyst at Edward Jones & Co. “These guys really need to step up the product introduction and marketing.”

Activist Shareholders

The shares declined as much as 9.7 percent to $84.15 in New York, the biggest intraday drop since January 2015. Tiffany had climbed 20 percent this year through Tuesday’s close. Signet Jewelers Ltd., the owner of the Kay, Zales and Jared chains, , fell as much as 9.1 percent.

Valentine’s Day typically brings a surge of shopping to the jeweler, but it wasn’t enough to salvage results in the latest quarter. Same-store sales -- a key measure -- fell 2 percent in the period. Analysts had projected a gain of 1.7 percent on average, according to Consensus Metrix.

Already, Tiffany is coping with management turnover. The board abruptly ousted Chief Executive Officer Frederic Cumenal in February and put Chairman Michael Kowalski in that role on an interim basis. The company has also faced pressure from activist shareholders, like hedge fund Jana Partners, which has said the shares are undervalued, and CtW Investment Group, which is pushing for more diversity and younger directors on the jeweler’s aging board.

New Designer

Even with the sales stumble, Tiffany was able to top earnings estimates, helped by higher operating margins. The company reported a profit of 74 cents, compared with a 70-cent projection.

Net sales amounted to $899.6 million in the period, which ended April 30. That missed the $914.4 million predicted by analysts. Same-store sales in all of its main markets were worse than analysts’ projections. In Americas, they dropped 4 percent, compared with an expected decline of 0.2 percent, while those in Asia fell 2 percent against a 1.4 percent gain.

The company maintained its forecast for the year, calling for sales to grow by a low single-digit percentage. Earnings are expected to climb by a mid-single-digit percentage over last year’s $3.75 a share, excluding some items.

In the fall, Tiffany plans to launch a luxury accessories collection as well as a new fragrance for women. The 180-year-old company hired designer Reed Krakoff as chief artistic officer earlier this year also to help reignite buzz and sales.

The involvement of Jana, which appointed three directors to the board as part of an agreement in February, should help Tiffany improve performance, but that will take time, said Yarbrough of Edward Jones.

“It’s not going to happen overnight,” he said. “The bottom line is they’ve got to get the sales moving in the right direction.”

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, Lisa Wolfson