Tiffany & Co., the world’s second-largest luxury jewelry retailer, cut its annual profit forecast for the third time this year after higher diamond costs ate into margins and customers curbed spending in weak economies.
Profit in the year ending Jan. 31 will be $3.20 to $3.40 a share, down from a previous projection of $3.55 to $3.70, the New York-based company said in a statement today. Analysts projected $3.60, the average of 23 estimates compiled by Bloomberg. Tiffany fell the most in six months.
Tiffany’s gross margin, a key measure of profitability, shrank more than analysts anticipated last quarter as precious-metals costs also increased. Sales, which also trailed the average projection, were “weak,” said Liz Dunn, an analyst with Macquarie Group Ltd. in New York, who rates the shares neutral, the equivalent of hold.
“They are continuing to struggle with higher costs for raw materials and that is likely to be an ongoing issue with people not feeling great about the economy,” Dunn said in a phone interview today. “They also are being hurt by the way customers are favoring the high-priced stuff, which happens to be the lower-margin business.”
The shares dropped 6.2 percent to $59.80 in New York, the biggest decline since May 24. They have decreased 9.7 percent this year, while the Standard & Poor’s 500 Index gained 13 percent.
Sales of silver jewelry, which has lower prices and higher margins, fell, Mark Aaron, a Tiffany spokesman, said on a conference call with investors and analysts. Tiffany saw “softness” in China, particularly in Hong Kong, he said.
Net income in the three months ended Oct. 31 fell 30 percent to $63.2 million, or 49 cents a share, from $89.7 million, or 70 cents, a year earlier. Analysts projected 63 cents, the average of 20 estimates compiled by Bloomberg.
Revenue rose 3.8 percent to $852.7 million, trailing the $858.4 million average of analysts’ estimates.
In the Americas region, which accounts for almost half of annual sales, comparable store sales, which exclude new locations, gained 1 percent after jumping 15 percent in the third quarter of 2011. In Asia Pacific, comparable store sales, excluding the impact of currency fluctuations, dropped 4 percent after soaring 36 percent a year earlier.
Gross margin, or the percentage of sales left after the cost of goods sold, shrank to 54.4 percent from 57.9 percent a year earlier. Analysts estimated 56.5 percent. The drop shaved 8 cents off per-share profit, Chief Financial Officer Patrick McGuiness said on the call.
Cie. Financiere Richemont SA is the world’s largest luxury jewelry maker.