By Neil Saunders
Following on from a very weak second quarter, it is pleasing to see Tiffany nudge back into growth on a total sales basis. The 1% uplift is modest, but it is far better than the string of poor numbers the company has been posting for well over a year. That said, the figures do not show that all the problems at Tiffany have been resolved. Indeed, part of the increase is attributable to the very easy comparatives from the prior year; and part is down to the strength of the yen against the dollar, which aided performance in Japan. In our view these are rather technical gains, and are not growth produced by a sound underlying strategy.
Following on from a very weak second quarter, it is pleasing to see Tiffany nudge back into growth on a total sales basis. The 1% uplift is modest, but it is far better than the string of poor numbers the company has been posting for well over a year. Elsewhere, sales in Asia-Pacific rose by 4%, after a better performance in China. Japan also saw some strong uplifts.
That Tiffany still has issues is demonstrated by the Americas figures, where sales declined by 2% on both a total and comparable basis. This comes off the back of a 7% and 9% decline in total and same store sales in the prior year. Notably, the impact of the strong dollar on sales to tourists at Tiffany’s flagship stores now seems to have dissipated and annualized out; if anything, the company noted that tourist sales were relatively strong over the quarter.
This dynamic means the blame for the dip comes, primarily, from domestic demand. Here our data show that Tiffany continues to suffer from a decline in both the number of American consumers who consider it for jewelry purchases as well as the proportion who end up buying from it. In a category like jewelry, where purchases are relatively infrequent, not being firmly on the consumer radar is an issue as it gives Tiffany little opportunity to recapture ‘lost’ spending.
There is an argument to be made that as U.S. department stores see customer traffic weaken, Tiffany should be picking up some trade – at least for mid to higher end purchases. However, this does not seem to be happening. Instead, consumers are migrating to more contemporary premium brands, as well as to custom and direct-to market-players like Blue Nile – which was recently acquired by Bain Capital. These represent the new growth spots of consumer demand in jewelry – spots to which Tiffany, with its ‘old world’ image do not have immediate and ready access.
Thankfully for Tiffany, its weak performance in the U.S. was not replicated elsewhere this quarter. Sales in Asia-Pacific rose by 4%, after a better performance in China. However, comparable sales in the region are still in decline, not helped by continued slides in Hong Kong and Australia. Japan also saw some strong uplifts, with a 13% increase in total sales. However, these were a function of the strong yen and once this impact is removed sales dipped by 4% on a constant currency basis.
While sales in Japan benefitted from a favorable exchange rate, Europe had no such tailwind. The depreciation of sterling and the euro saw sales decline by 10% on a total basis and by 14% on a same store basis. Even so, underlying demand in the region – like in the U.S. – remains soft.
Tiffany has a lot more work to do before it gets into sustainable growth.
Neil Saunders is CEO of research firm Conlumino.