Tiffany Rises as Asia Growth, Higher Prices Help Fuel Profit

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  • Full-year EPS forecast to grow by mid-single-digit percentage
  • Product price increases last year helped boost profit margins

Tiffany & Co. rose the most in more than two months as new stores in Asia and higher-priced jewelry helped the luxury chain exceed fourth-quarter earnings estimates.

Excluding some items, profit was $1.45 a share last quarter, the New York-based company said Friday. That topped the average projection of $1.38.

The results signal that Tiffany is coping with a slowdown in its home market, where it’s been battered by sluggish tourism spending and shrinking mall traffic as more consumers shop online. Price increases and changes to its product mix helped boost the company’s gross margin by more than 1 percentage point in both the fourth quarter and full year.

The opening of new locations, meanwhile, helped push total sales up 9 percent in the Asia-Pacific region. Tiffany also is expanding its fashion jewelry lines and stepping up digital advertising to revive sales.

“Almost every region for the quarter ended up showing improvement, despite the weak holiday sales, and that’s a positive,” said Brian Yarbrough, an analyst at Edward Jones & Co.

The shares rose as much as 4.5 percent to $94 in New York Friday, the biggest intraday gain since Jan. 12. Tiffany had already climbed 16 percent this year through Thursday.

Revenue Beat

Sales of $1.23 billion also surpassed the average $1.22 billion estimate. Comparable sales, or those for stores open at least a year, were unchanged globally in the quarter, a better outcome than the 1.1 percent decline predicted by analysts, according to Consensus Metrix. The Asia-Pacific region and Japan account for about 38 percent of revenue, while the U.S. makes up almost half.

Tiffany forecast mid-single-digit percentage growth for full-year earnings per share, excluding some items. Analysts projected an average of $3.87, which is about a 3 percent increase.

Tiffany has struggled to attract younger consumers partly because of a lack of innovative designs. To become more relevant with millennials and draw more shoppers into stores, the company will accelerate the rollout of new collections and refresh existing items. It will also renovate some shops and improve the in-store experience, Chairman and interim Chief Executive Officer Michael Kowalski said on a conference call Friday. 

Lady Gaga

The company, which has also commissioned pop singer Lady Gaga to become the face of its fashion-jewelry collection, aims to increase the sales contribution of new jewelry designs to more than 10 percent, Kowalski said. Tiffany will improve its technology and website to boost online sales.

Earlier this year, the company abruptly removed CEO Frederic Cumenal and attracted an investment from sometimes-activist hedge fund Jana Partners LLC. That has buoyed investor optimism, sending the shares higher and short interest plunging. The 179-year-old jeweler has seen a series of management changes, including the departure of top designer Francesca Amfitheatrof and the appointment of Reed Krakoff as chief artistic officer. It also recently brought on Chief Financial Officer Mark Erceg.

The retailer is searching for a permanent CEO, which will take time, Kowalski said.

Customer traffic at Tiffany’s flagship store in New York, which accounted for less than 10 percent of total sales, has been hurt by the heightened security around President Donald Trump’s adjacent residence. Sales at the store dropped 7 percent in the fourth quarter, although they performed better than expected in January because of several large single transactions, Erceg said on the call. The company is “somewhat cautious” about the store’s performance in 2017 as it works with the New York Police Department to minimize disruptions, he said.