Tiffany trims profit outlook as it factors in higher China tariffs

Tiffany on Tuesday trimmed its earnings outlook as the upscale jeweller flagged up its expectations that it will face increased tariffs on goods it exports to China.

The New York-based company said it now expects earnings in its 2019 financial year to increase by a low-to-mid single-digit percentage, compared with its previous outlook for a mid-single-digit percentage increase.

It said the new earnings outlook now reflects the assumption of “tariffs increasing on jewellery that the company exports from the US to China from its current levels to a new level of 25% on average.”

Tiffany’s new guidance underscores the effect the Trump administration’s trade dispute with China, the world’s biggest emerging market, has had on corporate America.

The company on Tuesday also blamed strength in the US dollar and “dramatically lower” spending from foreign tourists for a slip in quarterly sales.

The group said global sales fell 3 per cent from a year ago to $1bn in the fiscal first quarter that ran to the end of April — essentially matching Wall Street forecasts. Comparable sales fell 2 per cent, worse than analysts’ expectations for a shallower 1.2 per cent slide.

The retailer founded in 1837 reported sales declines across all its major markets. In the Americas, Tiffany’s largest market, sales fell 4 per cent, while in Asia-Pacific sales slid 1 per cent as strength in mainland China was offset by results elsewhere in the region. In Japan and Europe, sales declined 4 per cent.

“Our first-quarter results reflect significant foreign exchange headwinds and dramatically lower worldwide spending attributed to foreign tourists,” said chief executive officer Alessandro Bogliolo. “That said, we were pleased that, at the core of our business, global sales attributed to local customers, led by sales in China, grew over last year’s very strong sales results.”

Net income fell to $125m or $1.03 a share, down from $142m or $1.14 a share in the year ago quarter. The EPS exceeded analysts’ estimates by a penny. Tiffany’s gross margin declined to 61.7 per cent, down from 63 per cent in the prior year quarter.

Despite strength in the US labour market and upbeat consumer sentiment it has been a difficult start to the year for many retailers, who have blamed everything from poor weather, slower traffic for stores, lower tax refund for disappointing results.

Tiffany has focused on more direct marketing programmes and refreshed its product offerings in an effort to draw in younger shoppers. It has unveiled a restaurant at its flagship store on New York’s Fifth Avenue and has planned a renovation of the store that is set to wrap up in the fourth quarter of 2021.

The jeweller also announced a 5 per cent increase to its quarterly dividend to 58 cents a share. Tiffany shares, which are up 12 per cent year-to-date, slid 2.5 per cent to $88 in pre-market trade.

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