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The Globe and Mail

Jewellers Tiffany, Signet disappoint; cite softening sales

Tiffany & Co. cut its fiscal-year sales and profit forecasts on Thursday, blaming slowing economic growth in many countries and weakness in its home U.S. market.

The upscale jeweler's U.S. sales started softening in the fall and over the holidays amid concerns about Wall Street layoffs and then picked up in the winter.

But the company said the "soft trend" had continued and pointed to industry-wide sluggishness in sales of high-end jewelry.

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Similarly, rival Signet Jewelers Ltd. also issued a disappointing forecast and posted quarterly results that showed slowing growth in its U.S. sales, particularly at its pricier Jared chain.

Signet, which gets about 20 per cent of revenue in Britain, said a "promotional" climate there would drag down earnings.

Tiffany shares were down 7.8 per cent at $56.98 in midday trading, while Signet fell 8.5 per cent to $43.67.

Tiffany reported lower-than expected earnings for the first quarter ended on April 30. It cut its full-year global net sales growth forecast to a range of 7 per cent to 8 per cent from a prior outlook of 10 per cent, pointing to "decelerating rates of economic growth in many countries."

To keep up with rising diamond and gold costs, Tiffany has raised prices in recent years. But that may discourage shoppers facing a turbulent economy, said Brian Sozzi, chief equities analyst at NBG Productions.

"Tiffany is battling a host of external headwinds and years of price increases that are causing consumer pause," he said.

Tiffany said it was not planning any "significant" price increases, citing shoppers' resistance to paying more for its inexpensive silver jewelry.

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In the last few years, Tiffany has successfully and aggressively expanded, pushing further into growing markets like China, Canada and Eastern Europe. The company said its curtailed sales forecasts would not put a brake on those initiatives.

"Those sales results certainly do not affect any of our exciting plans for store expansion," chief financial officer Pat McGuiness told analysts on a call.

At the same time, Mr. McGuiness said market conditions, including in the fast-growing Asia-Pacific region, might remain soft in the next two quarters.

Tiffany lowered its full-year profit outlook by 25 cents a share, to a range of $3.70 to $3.80.

Excluding the impact of currency, sales at Tiffany stores open at least a year were flat in the Americas and Europe during the first quarter.

Tiffany said its weakest store in London was the one in that city's financial district.

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Sales at the company's flagship store in Manhattan fell 4 per cent.

Companywide, Tiffany sales increased 7.6 per cent to $819.2-million, while same-store sales rose 4 per cent, helped by gains in Asia.

Tiffany reported net income of $81.5-million, or 64 cents per share, up slightly from $81.1-million, or 63 cents per share, a year earlier. That was 5 cents below what Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.

Signet's growth slows

Results from Signet, whose U.S. chains also include Kay Jewelers, also showed signs of a slowdown. U.S. same-store sales rose 1.2 per cent in the first quarter ended on April 28, far below the torrid pace of recent periods.

Signet said the timing of Mother's Day had reduced that gain by 4.4 percentage points. But even factoring that in, the sales increase was less than the 11.1 per cent of a year earlier, when it was winning market share away from its most direct rival, mid-tier jeweler Zale Corp.

The slowness was particularly marked at Jared, where comparable sales in the first quarter edged up just 0.2 per cent, compared with double-digit percentage increases last year.

Signet's largest chain, the moderately priced Kay, fared better, with comparable sales up 2.9 per cent. But Zale has been fighting back, and on Wednesday reported a 10.9 per cent gain in the U.S.

"We're not losing anything to Zales," Signet chief financial officer Ron Ristau said on a call, pointing to strong Mother's Day sales that have fueled strong gains in May so far.

In Britain, which accounts for one-fifth of Signet's revenue, same-store sales are continuing to rise. But Signet has had to keep its prices in check there, and the company said the "promotional" environment in Britain would hurt its earnings by 6 cents per share.

Signet said it expected earnings per share of 78 cents to 84 cents in the current quarter, below analysts' estimates of 90 cents.

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