Chinese Tourist Decline to the U.S. Clouds Tiffany & Co.’s Outlook

    Citing a decline in Chinese tourism to the U.S., Tiffany reported lower-than-expected earnings for the most recent quarter and trimmed its forecast for next quarter.
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    Matthew LubinAuthor
      Published   in Finance

    Citing a decline in Chinese tourism to the U.S., Tiffany & Co. reported lower-than-expected revenues for the most recent quarter and trimmed its forecast for next quarter.

    The results were early evidence of something both luxury and travel professionals have feared in recent months: that an economic slowdown in China and trade tensions would impact their industries hugely.

    The high-end jeweler actually beat Wall Street earnings-per-share estimates in their 3Q 2018 earnings report on Wednesday, but the lower-than-expected revenue of 1.01 billion was an increase of only 3.5 percent from the same quarter in 2017.

    In reference to the lower sales, CEO Alessandro Bogliolo said during the conference call, “This we mainly attribute to Chinese spending. Because if we look at sales to domestic customers in North America, we have seen solid growth…. We have seen no slowdown from local customers in the U.S.”

    Bogliolo, however, noted that the company has seen strong sales in mainland China. It has had a full-fledged marketing campaign in China to connect online and offline shoppers and it collaborated with Alibaba’s Luxury Pavilion in August, setting up virtual pop-up stores as well as actual ones throughout China.

    The company specifically said that Chinese tourists in the Americas and Hong Kong spent less than expected in the quarter. With decreased Chinese spending anticipated in the future, Tiffany lowered its forecast for same-store sales.

    Overall, Chinese tourists have been spending less per trip this year even though they are traveling more frequently. Additionally, fewer Chinese tourists have been heading to the U.S. as the exchange rate between the yuan and the dollar has made the trip more expensive.

    There has also been a decrease in tourism to the U.S. due to trade tensions and concerns over safety, based on Chinese media reports of shootings across the U.S. this year.

    The situation is also not being helped by China’s recent crackdown on daigou businesses -- traveling shopping agents who buy luxury goods overseas to bring back into China for resale. Tiffany’s earnings report also noted “lower wholesale travel-retail sales in Korea,” which may relate to daigou shopping.

    The lowered outlook didn’t sit well with investors as shares in Tiffany dropped nearly 12 percent to 92.55 despite U.S. markets surging today. The stock surged in July to a high of 141 but has been in a downward trend since September.

    The better-than-expected net profit of 0.77 per share on lower-than-expected revenue was attributed to higher gross margins and reduced taxes.

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