The upscale jeweler Tiffany & Company said Friday that the number of purchases at its American stores dropped during the holiday shopping season, a sign that a pullback in consumer spending that started at the low end of American retailing is percolating up to high-end merchants.
The slowdown was unexpected, and it sent jitters through the world of luxury-goods makers, who had seemed invulnerable over the last five years, even as energy prices surged and the housing market began to sputter.
The Tiffany results were among the clearest evidence yet that wealthy consumers — and middle-class shoppers who sometimes splurge on luxury items — are starting to tighten their purse strings.
Saks Fifth Avenue, Coach and Nordstrom have all experienced a slowdown in growth this holiday season. They are careful to emphasize that the truly rich are still shopping with abandon — Louis Vuitton merchandise, for instance, was a hit in December — but they concede that just about everybody else is starting to cut back.
At Tiffany, for example, the most disappointing categories were not $50,000 engagement rings, but jewelry priced from $1,000 to $10,000, executives said.
“The greatest amount of weakness was in the mid-tier luxury consumer,” Michael J. Kowalski, the chief executive of Tiffany, said in an interview.
Over all, United States retail revenue at Tiffany rose 4 percent between Nov. 1 and Dec. 31, to $450 million, because the average amount spent by each shopper rose compared with last year, offsetting the drop in the number of purchases.
But nearly all of that 4 percent growth can be traced to foreign consumers, who capitalized on the weak dollar to buy jewelry. Tiffany said that without foreign buyers, its domestic sales would have been unchanged from last year. The company likewise credited a 10 percent increase in sales at its flagship Fifth Avenue store in Manhattan to foreign shoppers.
Sales at Tiffany’s American stores open at least a year — a carefully watched barometer in retailing, known as same-store sales — fell 2 percent, a bigger drop than the company had predicted.
Shares of Tiffany dropped $4.52, or 11 percent, on Friday to close at $35.80 a share.
Mark L. Aaron, vice president for investor relations, said total sales were below expectations.
“We entered the holiday season facing well-known challenging conditions,” he said. Even so, he added, “the magnitude of the softness was more than we expected.”
At the very high end, the number of consumers buying Tiffany jewelry priced over $50,000 rose, but the average amount they spent dropped slightly.
Tiffany is still on track to meet its fourth-quarter earnings forecast, and executives said they were pleased with results for 2007 to date. Indeed, Mr. Kowalski cautioned against reading too much into the slowing United States sales, which did not materialize until mid-December.
“To draw a conclusion that there is a chink in the luxury armor after five weeks would be extremely premature,” he said.
David Schick, a retail analyst at Stifel Nicolaus, is not so sure. “Tiffany is not making mistakes in merchandise and marketing,” he said. “So if Tiffany is doing the right thing and business is down in the U.S., it gives you a glimpse of how the high-end consumer is doing.”
Tiffany’s worldwide sales rose 8 percent in November and December, to $867 million, based on strong sales in China, Hong Kong and Australia.
In the United States, however, the picture was less rosy. At Tiffany’s suburban New York stores, which are patronized by a relatively affluent group of consumers, same-store sales fell 10 percent.
One of the company’s strongest product categories was also its least expensive: silver jewelry priced under $1,000.
The chief financial officer, James N. Fernandez, said Tiffany was struggling to forecast its performance over the next year, given the cloudy economic picture.
“There is uncertainty about the macro conditions and the state of consumer spending in the U.S.,” he said. “Providing guidance now would be a disservice to our investors.”
Source: nytimes
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