Tiffany profit drops, but won’t cut prices
March 25, 2009 | Associated Press | Comments
Tiffany & Co. reported Monday that fourth-quarter profit tumbled more than 75% as shoppers who were cautious about splurging on high-priced jewelry pulled in their pocketbooks.
Enough people bought lower-priced items, though, that its earnings beat analysts’ forecasts. Its shares rose 12%.
Tiffany said it believes its sales were hurt by the discounts offered by other jewellers and high-end competitors. Although competition among jewellers remains intense, Tiffany still plans to maintain its prices to protect its cachet—symbolized by its famous blue box.
“We did and will continue with our full-price philosophy in order to maintain appropriate margins and, very importantly, to maintain the integrity of the Tiffany & Co. brand,” chief financial officer Jim Fernandez told analysts.
About 600 of Tiffany’s U.S. employees accepted an early retirement package during the fourth quarter, which the company expects will help reduce its worldwide staff by 10% and save about US$60 million before taxes this year.
Tiffany, which reports in U.S. dollars, said its earnings dropped to $31.1 million, or 25 cents per share, for the three months ended Jan. 31, down from $127.4 million, or 96 cents per share, a year ago.
Excluding costs related to job cuts and other one-time items, the retailer said quarterly earnings totalled 85 cents, better than the 80 cents expected by analysts.
Sales dropped 20% to $841.2 million from $1.05 billion in last year’s fourth quarter, but came in above the $838 million Wall Street expected. At Tiffany’s flagship store on Fifth Avenue in New York, sales dropped 34%. The store represents 10% of total sales and is a popular attraction among tourists.
Same-store sales dropped 23%, excluding the impact of foreign currency exchange. Tiffany said a 33% drop in same-store sales in the Americas drove the decline.
Revenue in the U.S. dropped in every price range, but the declines were “somewhat smaller” in sales below $500 and larger above $50,000, said Mark Aaron, Tiffany’s vice-president of investor relations.
Edward Jones analyst Matt Arnold said Tiffany may be able to boost the number of products it offers at lower prices.
“A lot of Tiffany’s strength is a trade down from higher price points because consumers still want to give the ‘blue box,’ ” Arnold said.
But he said Tiffany doesn’t need to lower prices because consumers are still willing to pay for the Tiffany brand.
“This is one of the few jewellers that have a brand that means a lot. It’s the reason they can expand internationally while others can’t,” Arnold said.