Tiffany Comments on Declining Japan Comps

Tiffany's (TIF) shares surged 6.4% after it put up some nice Q3 numbers, beating analyst estimates and raising full-year guidance. Its one area of weakness was in Japan. A weaker yen y-o-y to the tune of about 4.5% exacerbated declining comps.

The good news is the yen should strengthen against the dollar in '07, but it's up to Tiffany to improve sales. In its Q3 earnings conference call it acknowledged economic reports that confirm the Japanese economy is growing. However, it was not immune to a nationwide slowdown in consumer spending.

Tiffany's seems confident it can turn things around. I believe Japanese consumers will spend more in December and January in expectation of better wages to come, and (assuming accurate consumption data) since they weren't spending as much in prior months.

In its Q2 conference call, Tiffany's VP of Investor Relations commented that Japan accounts for nearly half of all its international sales.

Here's an excerpt of Tiffany's Q3 conference call discussing Japan:

Total retail sales in Japan in the third quarter declined 3% as a decline in unit volume was only partly offset by an increase in average price and mix. Comp store sales in Japan declined 5%, which was below our expectation for a smaller decline and compared with a flat comp in last year's third quarter. The yen averaged 117 to the U.S. dollar in the third quarter versus 112 a year ago; therefore, the 3% decline in total Japan retail sales in yen translated into an 8% decline in U.S. dollars. Results in Japan were consistently soft throughout the quarter with comp declines of 5% in August, 4% in September and 7% in October. In comparison, comps in last year's third quarter had declined 2% in August and 1% in September, but had increased 4% in October. In the quarter, the 5% comp store sales decline was divided pretty evenly between the Tokyo market, including a 4% decline in our Tokyo flagship store, and locations outside Tokyo.

Recent economic reports confirm that the Japanese economy is growing, although it appears that the environment for consumer spending is challenging. However, we believe that Tiffany has the potential to improve its performance there as we continue to focus on a more proactive customer engaging sales approach, as well as upgrading a number of our retail locations in Japan through renovations, expansions and/or relocations. This year we've opened four locations and closed one in Japan, including the highly visible opening earlier this month of our freestanding store in the Roppongi Hills section of Tokyo.

Tiffany & Co. (TIF) 1-year chart:

Disclosure: The author does not own shares of Tiffany.