Tiffany & Co. shares slumped the most in four years on disappointing sales growth, prompting executives to offer up assurances that their plan to revitalize the brand for younger shoppers is still on course.
The 181-year-old company became a luxury darling this spring as its turnaround gained speed. Wall Street’s optimism soared as the jewelry maker ramped up advertising, released new products and unveiled a bold plan to refurbish the New York flagship store.
Yet shares have fallen more than 30 percent since peaking in late July as that optimism has waned. Wednesday’s sharp drop following the release of earnings shows investors may be more concerned about Chinese tourists’ sudden frugality than the company’s inroads with younger consumers.
In an interview, Chief Executive Officer Alessandro Bogliolo acknowledged the tourism challenges. A Chinese customs crackdown appears to have dissuaded the nation’s international travelers from spending freely, and this is being felt by luxury-goods companies across Europe and the U.S. Bogliolo confirmed that the crackdown, first highlighted by Louis Vuitton owner LVMH in October, has had an impact.
“Tourism is an important part of the business,” Bogliolo said. “It’s not the biggest part, but it’s something that we have to deal with.”
He insisted the problem is not with the products, saying he’s pleased with the performance of new collections such as its Tiffany True rings. He said currency fluctuations were another factor.
Earlier Wednesday, Tiffany reported weaker-than-expected sales on a same-store basis in all regions except Asia-Pacific. The New York-based company said growth was limited by lower spending among Chinese travelers in the U.S., Hong Kong, and Korea. Executives said on a conference call with analysts that they see a “clear pattern” in Chinese shoppers slowing spending outside of the mainland, due to the government’s efforts to foster local consumption. Domestic spending on Tiffany products rose last quarter.
While this may hurt sales elsewhere, Bogliolo said this creates an opportunity in China.
“Exactly when the sales to Chinese tourists slowed, we went from double-digit growth to much stronger double-digit growth in mainland China,” said Bogliolo. “This is telling me Tiffany is relevant to Chinese consumers.”
Neil Saunders, a managing director at GlobalData Retail, said that Tiffany’s move to re-position the brand and attract younger shoppers is indeed paying off.
“A few years ago, this group was largely apathetic to Tiffany, viewing the brand as old-fashioned and irrelevant to their needs and tastes,” Saunders said. “In a relatively short space of time, Tiffany has started to shift that perception and demonstrate that it has something fresh to offer to younger consumers.”
Bogliolo said the company has tread carefully in making the changes because it doesn’t want to alienate Tiffany’s existing customers. Sales to both new and old customers have grown since the shift, and store traffic has increased every month this year, he said.
Even so, Wall Street’s focus is on Chinese tourists. Brian Tunick, an analyst with RBC Capital Markets, said he was “somewhat disappointed” although “not completely surprised” by the sales slowdown in the third quarter. He predicted shares will underperform until Chinese spending improves.