Tiffany expects pressure on profit to ease; shares up

Mon Aug 27, 2012 11:30am EDT
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By Phil Wahba

(Reuters) - Tiffany & Co (TIF.N: Quote) cut its sales and earnings forecasts on Monday for the second straight quarter, citing a tough global economy and muted expectations for the holiday season, but the prospect of improving profit margins later in the year comforted investors.

Shares of the jeweler rose 7 percent to $62.62 on its expectations that pressure on margins from gold and diamond costs are at last easing this quarter. Tiffany said gross margin should start to rise again in the holiday quarter, its biggest of the year by far.

"It's the light at the end of the tunnel," Morningstar analyst Paul Swinand told Reuters.

Still, Tiffany is more exposed than other U.S. luxury names to a slowing of China's torrid economic growth, a pullback in Europe and a damping of higher-end jewelry sales at home.

Tiffany reduced its global net sales growth forecast by 1 percentage point to range of 6 percent to 7 percent for the year ending in January.

The company's growth was bound to be more modest than the 30 percent pace of a year earlier. Monday's forecast reduction, which follows one in May, came in large part because Tiffany now assumes sales growth during the holidays will be slower.

Tiffany lowered its full-year profit outlook to between $3.55 and $3.70 a share from $3.70 to $3.80, coming in line with Wall Street expectations of $3.64.

Despite the cautious forecasts, Tiffany is proceeding with the expansion plans that have supported its fast growth in recent years. The chain said it now expected to open 28 stores by the end of the year, including locations in Toronto and Manhattan's SoHo neighborhood, up from the 24 initially planned.   Continued...

Visitors walk by a Tiffany & Co. Store at Santa Monica Place in Santa Monica, California November 26, 2010. REUTERS/Phil McCarten