Luxury retailer Tiffany (TIF) reported challenging holiday sales Thursday. Global sales growth came in at 4% ($992 million) - the low end of the firm's previous guidance range - after sales really slumped in North America.
Same-store sales at the Tiffany 5th Avenue flagship store in New York and stores throughout North America declined 2% during the holiday period. Internet and catalog sales in the region did increase 4%, leading total sales in the Americas region to increase 2% on a constant currency basis (and 3% on a reported basis to $516 million). This could be a negative for other stores such as Saks (SKS) that are so heavily tied to New York flagships, but we do not expect it to have a material read through for too many other retailers.
Sales in Europe were also lackluster, growing just 2% compared to last year, to $119 million. Same-store sales growth was flat, suggesting that perhaps the business is stabilizing. Europe - due to declining birth rates, later marriages, and a declining population - doesn't look to be a very attractive market for the luxury jeweler, in our view.
Asia-Pacific results were much stronger, and we think it represents a much more important part of the business than Europe going forward. Sales jumped 13% on a reported basis (11% excluding currency), to $187 million, with same-store sales increasing 7% compared to last year. Strength was broad based, with China performing well, which is surprising after we heard such bearish news from YUM Brands (YUM) and Nike (NKE).
It is possible that sales in Asia may be cannibalizing sales at other tourist destinations, especially given the large amount of business that high-end Asian shoppers have brought to American and European stores in the past few years. This is a trend worth watching, particularly in the luxury space. Coach (COH) and other aspirational brands could see downward pressure on sales in crucial regions.
Not surprisingly, Japan was somewhat weak, falling 5% on a reported basis to $153 million. Same-store sales advanced 1%, and while the country represents a fairly significant mix of Tiffany's total sales, we are bearish on the nation's long-term consumption prospects.
Most importantly, earnings look to be coming in at the low end of the company's full-year guidance range of $3.20-$3.40 per share - suggesting there was margin pressure on top of sales weakness. More than anything, we tend to believe that Tiffany is simply losing some of its popularity. The brand has been on fire since 2009, and we think consumers are in the mood for something different. It's incredibly difficult for an aspirational brand to sustain its momentum uninterrupted.
Overall, while the results were not good, we weren't interested in shares of the retailer to begin with. Shares have not been priced attractively relative to its peers in some time, and we believe the company is fairly valued at current levels. We aren't interested in adding shares to the portfolio of our Best Ideas Newsletter unless we get a better entry point.