Better sales in Japan, China help boost Tiffany’s profits
Tiffany posted a one per cent increase in its fourth quarter worldwide net sales to $1.2 billion with comparable store sales unchanged from the prior year. On a constant exchange rate basis, worldwide net sales rose two per cent and comparable store sales unchanged.
Fourth quarter sales in the Asia-Pacific region saw a nine per cent increase from the previous corresponding period, benefitting from the opening of new stores. On a constant exchange rate basis, total sales rose 10 per cent in the fourth quarter and comparable store sales declined seven per cent and one per cent respectively.
During the year, management attributed performance in the region to increased purchasing by local customers and declines in spending by foreign tourists.
The company reported strong retail sales growth in China, increased wholesale sales in Korea, a decelerating rate of retail sales decline in Hong Kong and varying performance in other countries.
In Japan, total sales rose to 15 per cent to $185 million in the fourth quarter, and a 19 per cent increase in comparable store sales.
The retailer has struggled with sales in its home US market. At its New York store, close to Trump Towers, access was disrupted because of the extra security measures on the building.
Total sales in the Americas saw a three per cent dip in the fourth quarter to $587 million and comparable store sales decreased two per cent.
Michael J. Kowalski, chairman and interim CEO, said despite macroeconomic and geopolitical challenges in the past year, they strongly believe the company’s strategies are sound and would make meaningful growth opportunities.
“Our management team is focused on accelerating the execution of our strategies to deliver extraordinary products, communications and experiences that will delight our customers around the world,” Kowalski said.
According to Neil Saunders, managing director of GlobalData Retail, although Tiffany’s final quarter numbers are soft, they at least indicate that the declines which have plagued the company for a long period are starting to level off.
“For the second consecutive quarter total sales growth nudged into positive territory, and for the first time in over a year same-store sales were not negative,” Saunders said. “Admittedly both of these improvements come off the back of very soft prior year comparatives. Higher gross margins also helped to offset increases in operating expenses, although not to a sufficient degree to counterbalance the decline in sales – which meant net income for the quarter fell by 3.3 per cent.”
Saunders said although the business is making some progress, it is fair to say that that progress is patchy and does not indicate a company that is back to full health.
“Indeed, under the detail of the numbers it is clear that Tiffany still has issues in a number of regions, including the Americas and Europe. In the fourth quarter, sales for the former fell by three per cent, and sales for the latter slipped by seven per cent,” he said.
Saunders said part of the decline in the Americas is down to lower tourist spend which is impacting some flagship stores; that said, trend is now starting to dissipate and the effect on results is only slight compared to where it was at the start of the year.
“However, in the final quarter this was exacerbated by disruption at the Fifth Avenue flagship store which, due to its proximity to Trump Tower, saw customer traffic dip by around 14 per cent over November and December, and sales drop by seven per cent in the final quarter,” he said. “Given that this store usually contributes almost a tenth of company sales, it is reasonable to attribute some of the decline to this exceptional factor.”
The troubles, however, run wider than flagships and tourists.
“Tiffany is a brand that is increasingly overlooked by American consumers, especially younger demographics,” Saunders stated. “Just as was the case at the start of the year, Tiffany is still failing to connect with many shoppers segments and continues to lose ground to rivals.”
“Looking ahead, it is clear that Tiffany wants to reestablish its relevance and to project a much more distinctive image. The advertising during the Super Bowl, which highlighted Lady Gaga as the face of the brand, was a good start.
“However, in our view, it is not enough: it needs to be accompanied by a step change in products, store environments, and the general approach to selling. There is a need for a more fundamental and deeper shift in the brand’s direction. Fortunately, recent changes made to the management team, including the appointment of Reed Krakoff as Chief Artistic Officer and the hiring of three new board members, should act as a catalyst for this change,” Saunders said.
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