This weekend we stopped in a luxury jewelry shop to look for a gift. After a few moments of poking around we found what we were looking for—and then found ourselves dumbstruck by the price. In six months since we had last spotted the item, the price had doubled! Talk about sticker shock.
The girl in the shop explained that they had been hit hard by commodities prices. Precious metals have skyrocketed, and prices had to go up to preserve profits. Unfortunately, this price hike has come just when consumers are most hurting. She admitted that discretionary buying—basically, everything except wedding rings—has gone way down.
Naturally, our thoughts turned to Tiffany & Co. The publicly held luxury jeweler raised its fiscal 2008 outlook in August, saying it expects net earnings per of $2.82-$2.92, versus its previous forecast of $2.80-$2.90. But this expectation was based on two assumptions.
- They thought that worldwide sales would grow approximately 9%, based on continued strong growth in Europe and Asia-Pacific.
- They thought that growth in U.S. store sales in the fourth quarter would be strong.
Do either of those assumptions look safe now? With costs going up and consumer spending power and confidence dropping across the globe, this looks like a very tough quarter to be in Tiffany’s business. Of course, Tiffany’s is down 41.25%for the year, so investors may have already figured all of this out.