Tiffany Bombshell: Luxury Spending Might Be Slowing Down

Tiffany Bombshell: Luxury Spending Might Be Slowing Down

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After five quarters of positive earning surprises jewelry retailer Tiffany & Co cut its yearly earnings guidance and prepared investors for a fourth quarter disappointment.

“Sales weakened markedly in the U.S. and Europe during the holiday season, reflecting restrained spending by consumers for fine jewelry,” said Tiffany CEO Michael Kowalski. (via Associated Press)

Tiffany’s total sales rose 7% to $952 million in November and December, “helped by a 19% jump in the Asia-Pacific region and a 13% rise in Japan.”

Europe’s overall revenue increased by only 1%, and stores open for at least one year were down 4%.

Meanwhile, US growth was slower than anticipated. Total revenue is up only 2% in stores open at least one year. The New York flagship store saw revenues fall 1%. Apparently the weaker US spending canceled out higher sales to tourists.

The share price for Tiffany’s (TIF) fell 10.46% to $59.94 per share on Tuesday.

Luxury Spending

Growth in luxury spending has been pretty reliable since the recession ended in mid-2009, recovering faster than other segments. Does Tiffany’s holiday spending show a decline in that spending or simply over-enthusiastic earnings estimates?

Business Insider suggests declining bonuses on Wall Street “may have pushed Tiffany & Co.’s American operations lower, as city residents kept their purse strings and wallets closed.” 

Business Section: Investing Ideas

Do you think Tiffany’s holiday sales are a bellwether for the luxury market? If so, do you think the slump in luxury sales is temporary?

To help find out the impact of slowing luxury sales on companies other than Tiffany’s, we decided to track the performance of Citi Group’s top luxury stock picks (trading on the US stock markets).

Do you believe these names will disappoint?

 

 

1. Apple Inc. (AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap of $393.36B. Might be undervalued at current levels, with a PEG ratio at 0.84, and P/FCF ratio at 13.08. The stock has gained 8.86% over the last year.

 

2. Estee Lauder Companies Inc. (EL, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide. Market cap of $21.59B. The stock has gained 20.2% over the last year.

 

3. Starwood Hotels & Resorts Worldwide Inc. (HOT, Earnings, Analysts, Financials): Operates as a hotel and leisure company worldwide. Market cap of $10.15B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.08). The stock has had a couple of great days, gaining 5.08% over the last week.

 

4. Starbucks Corporation (SBUX, Earnings, Analysts, Financials): Operates approximately 16,858 stores, including 8,833 company-operated stores and 8,025 licensed stores. Market cap of $34.90B. The stock has gained 14.87% over the last year.

 

5. Saks Incorporated (SKS, Earnings, Analysts, Financials): Operates fashion retail stores in the United States. Market cap of $1.48B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.54). The stock is a short squeeze candidate, with a short float at 28.34% (equivalent to 11.07 days of average volume). It’s been a rough couple of days for the stock, losing 8.85% over the last week.

 

(Written by Rebecca Lipman)

 

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