Tiffany's profit forecast turns dimmer on strong dollar

Tue Nov 24, 2015 1:51pm EST
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By Yashaswini Swamynathan

(Reuters) - Tiffany & Co (TIF.N: Quote) reported a drop in quarterly sales and forecast a bigger fall in full-year profit than previously expected as a strong dollar kept tourists from spending in its showpiece U.S. stores.

After falling in early trading, the company's shares reversed course to rise more than 4 percent to a near two-week high.

Morningstar Inc analyst Paul Swinand attributed the swing to a higher free cash flow forecast and the acceleration of share buybacks.

Another bright spot in Tiffany's otherwise disappointing third-quarter results was Japan, where sales rose 17 percent to $133 million after falling for a year due to an increase in the country's consumption tax.

Analysts, however, predicted a miserable holiday season as the company's traditional reluctance to offer promotions turns away thrifty customers pulling back on discretionary spending.

Tiffany, founded in 1837, has been revamping its fine jewelry product lines, such as Victoria and Bows, and introducing new fashion jewelry to attract younger, style-conscious shoppers.

"The biggest concern is that they are not promotional," said Edward Jones analyst Brian Yarbrough, adding that the Paris attacks and a possible U.S. rate hike in December could weigh further on tourist spending, a key driver of Tiffany's sales.

Substantial investment in advertising and marketing has yet to bear fruit. Worldwide comparable sales fell 5 percent in the third quarter, a much bigger drop than the 0.8 percent decline expected by analysts, according to Consensus Metrix.   Continued...

The sign outside the Tiffany & Co. store is seen in Denver, Colorado March 19, 2015.  REUTERS/Rick Wilking