U.S. jewelers are confident they will prevail this holiday shopping season, betting that upscale and middle-income customers won’t resist buying baubles despite a weak economy.
High-end brand Tiffany & Co (TIF.N) posted a better-than-expected profit on Thursday, helped by strong sales overseas. The company raised its full-year forecast and expects its sales in sluggish U.S. jewelry market to grow in the key fourth quarter.
Zale Corp’s (ZLC.N) reported a lower than-expected loss and forecast a profit for the current fiscal year that beat Wall Street expectations. It said it would focus less on price markdowns and more on new products during the upcoming holidays.
Shares in Tiffany rose nearly 10 percent in morning trading. Zale surged more than 16 percent.
Tiffany’s U.S. sales have been weak recently as consumers cut back on discretionary purchases, though its higher-income clientele tend to be less affected by economic concerns than people who frequent more hard-hit jewelers such as Zale, Finlay Enterprises (FNLY.OB) and Signet Group (SIG.L).
But Credit Suisse analyst Paul Lejuez expressed doubts about Tiffany U.S. business.
“We believe the U.S. business overall will continue to disappoint this year, driven by softness in the branches as well as in the NYC market,” Lejuez wrote in a note.
Net profit at Tiffany nearly doubled to $80.8 million, or 63 cents per share, in its fiscal second quarter ended July 31. Analysts, on average, expected a profit of 55 cents per share, according to Reuters Estimates.
FEWER $50,000 PURCHASES
Tiffany’s sales rose 11 percent to $732.4 million. Sales in the Americas, which includes the United States, Canada and South America, rose 3 percent, helped by new stores.
But U.S same-store sales fell 4 percent, indicating that worries over pricier food and gasoline, and a housing market downturn are spilling over into the luxury sector.
To that end, a Tiffany spokesman said in a conference call that sales at prices above $50,000 experienced some softness.
Tiffany shoppers abroad remained unfazed. Sales in Europe shot up 35 percent, or 29 percent on a constant currency basis. Same-store sales rose 11 percent.
In the Asia-Pacific region, sales rose 17 percent, or 7 percent on a constant currency basis, and same-store sales were up 1 percent. Japan remained challenging for Tiffany.
Tiffany expects worldwide sales to grow about 9 percent in the year, fueled by strength in Europe and the Asia-Pacific region, excluding Japan.
It raised its full-year earnings outlook, to a range of $2.82 to $2.92 per share. Previously, it had forecast per-share earnings of $2.80 to $2.90.
ZALE VIEW BEATS
Dallas-based Zale has also suffered in recent months as even its most avid shoppers resist buying jewelry due to rising prices for necessities like food and fuel. But it expects that sentiment to soften come holiday time.
“We understand our sweet spot is value, which is a great place to be in the current environment,” Zale Chief Executive Neal Goldberg said on a conference call. “We will continue to be very aggressive at the key events and holidays.”
The company’s fiscal fourth-quarter loss was $4.9 million, or 15 cents per share, compared with a profit of $1.5 million or 3 cents per share a year earlier. Excluding items, the loss amounted to 48 cents a share, well below the 57 cents per share expected by analysts.
Total sales at Zale rose 6.1 percent to $456.2 million. Same-store sales also rose 6.1 percent.
The company said it expects to earn $1.10 per share to $1.25 per share for the full-year ending in July 2009, above Wall Street’s forecast of 90 cents per share.
Tiffany shares gained $3.89 to $43.50. Zale rose $3.64 to $26.79.