When a company starts off the year telling you about a back-half-weighted story, a huge red flag should go up.
Tiffany (TIF) was a back-half story, then it was a Q4 story. Now it is REALLY a Q4 story after the company brought the luxury-growth-slowing theme to a whole new level today. I wonder if Burberry is jumping up and down yelling, "I told you so." Burberry was one of the early alarm bells and warned it would not be alone. It was right and had plenty of company into the Fall (Richemont, PPR, Chow Tai Fook, Mulberry, Hugo Boss, Ferragamo and on and on have all cited slowing trends).
We did not exactly have high expectations going into the quarter today. Remember, guidance was for all the shiny growth weighted in Q4. And yes, we know comparisons were REALLY tough, similar to Q2. Another guide down was almost a given. But a 25% EPS miss vs. consensus was hardly in the stock. Gross margin degradation was one culprit as the entire volume drop this quarter came in silver below $500 (silver carries higher gross margins vs. pricier diamonds). Add higher input costs to the mix and decelerating sales trends in every geography except for Europe (ironic?).
The good news is Q4 comparisons are a breeze (worldwide comps up 5% vs. double digits for Q1-Q3. The bad news is as mainland China luxury continues to slow, I have to raise an unfortunate but obvious question. Will that not spill over into tourism? Now that would be really bad news as about 40% of the New York flagship store sales come from tourism. So far, visitors from Asia have been able to offset European weakness. It's the same story in Europe. Unfortunately, TIF will no longer be able to break out tourism comments.
Now that may be good timing.
