Tiffany shrugs off declines with LVMH in the wings

Dive Brief:

Tiffany & Co. on Thursday reported flat global third quarter net sales of $1 billion. In the Americas, net sales fell 4% in the quarter to $423 million, according to a company press release.
Store comps were also flat company-wide in the quarter, but fell 4% in the Americas due to "lower spending by foreign tourists and, to a lesser extent, local customers," the company said.
Net earnings tumbled 17% to $78 million from $95 million a year ago. Net inventories as of Oct. 31 were 4% above the prior year.

Dive Insight:

Tiffany is contending with a host of challenges, some unique to the diamond business, some not.

Gross margins in the third quarter, for example, shrank to 61.7% from 62.2% a year ago, mostly due to a shift toward higher priced jewelry.

By contrast, the fall-off in spending by tourists stems from outside forces like a strong dollar.

Executives opted not to parley with analysts on Thursday, in light of the pending $16.2 billion sale of the company to French luxury conglomerate LVMH, announced last week. Analysts didn't apparently feel the need to hear from them either, for the same reason — specifically that LVMH's deep pockets will likely go far in helping the jeweler meet its challenges. (Not to mention, Tiffany shares, if the takeover goes through, will soon benefit or lose from LVMH's broader fortunes.)

"Given that [Tiffany] has accepted a takeout offer from LVMH at $135/share (pending necessary approvals), the stock is no longer trading on fundamentals," Wells Fargo analysts led by Ike Boruchow said in emailed comments.

And those fundamentals are "choppy," Wells Fargo also said, particularly at home. "The domestic business remains an issue," Boruchow said, noting that Americas comps declined for the third quarter straight, falling despite an easier year-over-year comparison. "This was a significant disappointment, as the Street was modeling a slightly positive comp domestically."

Plus, the retailer "is on pace for its first year of declining [gross margin] since FY12," he also said, noting that otherwise gross margin has expanded over the past six years some 100 basis points on average.

According to Credit Suisse analyst Michael Binetti, the situation calls for ongoing investment "amid volatile [same-store sales, which] underscores our view that LVMH deal is best path."

But Tiffany isn't standing completely still while it awaits that deal to go through. On Thursday the company unveiled a men's pop-up store on East 57th Street in New York City that it said "serves as an experiential preview for what will be Tiffany & Co.'s two-year home during the transformation of its Fifth Avenue flagship." The pop-up will open Friday and close Jan. 6, 2020, according to a Tiffany press release emailed to Retail Dive.

The space features a collection of accessories, barware, home objects, games and other luxury items, including limited quantities of Tiffany x Spalding basketballs, a specially designed Tiffany Blue Indian Scout motorcycle and a handcrafted Tiffany Blue Blatt Billiards pool table. The company is also displaying major trophies from several sports leagues, which have been handcrafted by Tiffany in Rhode Island for 160 years.