Sharp on the heels of Wednesday’s disastrous US December retail numbers (plunging twice as much as expected) come sales figures from jewellery-maker Tiffany. Prognosis? Ouch ouch ouch.
Apparently demand for diamonds isn’t holding up well at all. As Reuters reports, Tiffany has cut its profit forecast again after sales over the holiday season fell no less than 21 per cent due to the ‘weak economy’. Shares declined some 7 per cent at the open, accordingly. From the report:
The company also said it is reviewing all elements of its cost structure. Tiffany expects earnings to fall in the fourth quarter ending on Jan. 31. It forecast full-year earnings of $2.25 to $2.30 per share, excluding any one-time fourth-quarter charges it may incur.
Tiffany lowered its full-year earnings forecast to $2.30 to $2.50 per share in late November, just before the U.S. Thanksgiving holiday, which traditionally kicks off the holiday shopping season. “Deteriorating global economic conditions were clearly reflected in cautious spending by Tiffany customers across the entire range of jewelry categories and price points. We believe these conditions will continue well into 2009,” Chairman and Chief Executive Michael Kowalski said in a statement.
U.S. same-store sales in November and December plunged 35 percent, Tiffany said. A year ago, sales were down just 2 percent on that basis. Total worldwide sales fell 21 percent to $687.4 million and fell 20 percent on a constant currency basis. In the 2007 holiday period, total holiday sales rose 8 percent, or 6 percent on a constant currency basis. Tiffany forecast full-year sales of about $2.85 billion. Shares of Tiffany were down 6 percent at $20.68 after falling as low as $20.50.
Tiffany share price below:
While this not only emphasises that people are clearly turning to zirconias, it puts to shame the much-expressed notion of last year that luxury goods sales would remain robust even in a recession on the grounds that “the really rich will stay really rich, or at worst become just rich”.
Another sad irony is that Tiffany was one of the few retailers in the UK to actually put up prices in the weeks ahead of Christmas. This, they said, was to make-up for the sudden weakness in the pound. Whatever the explanation, it certainly won’t have helped sales on Bond Street. It also reveals the company’s clear forex exposure.
Meanwhile, on the US retail sales front, the December fall was the sixth consecutive monthly decline — the longest stretch on record. According to Bank of New York Mellon three categories now stand out with respect to consumer spending over the last 12 months:
Gasoline station sales have plunged -35.1% y/y, while auto dealer sales have fallen -22.1% y/y and home furniture have fallen -11.9% y/y. As energy prices continued to fall, gasoline station sales are expected to continue falling, thereby undermining headline retail sales. At the same time, frozen credit markets have drastically reduced auto dealer sales. Additionally, the ongoing collapse in the housing market is undermining building materials and home furniture sales, with fewer home sales handicapping home improvement projects. The temporary surge in consumer spending during Q2 on tax rebate checks came to an abrupt end in Q3 on falling crude oil prices, exacerbated by the seizing up of credit markets in Q4 following the Lehman collapse. Households are slashing spending across the board on record lows in consumer confidence, soaring unemployment and a lack of access to credit.
So that would be cars, building materials and furniture — all suffering. Perhaps fine-jewellery should also be added to that list?
Related links:
The socialist shopper - FT Alphaville
Luxury fatigue - FT Alphaville
