Tiffany slashes 2008 view on weak sales, shares fall

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By Aarthi Sivaraman

NEW YORK (Reuters) - Upscale jeweler Tiffany & Co slashed its full-year forecast and said it plans to cut staff and trim its 2009 store growth plans, in a fresh sign that the shrinking U.S. economy is hurting affluent consumers.

Until recently, Tiffany, like other high-end retailers, was seen as more immune to economic turbulence because of its affluent consumer base. But the global financial crisis has rocked wealthy consumers' confidence about spending.

Tiffany posted a sales drop of 5 percent in its Manhattan flagship store on Fifth Avenue, which had enjoyed strong gains in past quarters from tourist spending.

"This is the last luxury retailer we have heard from and trends in the US are pretty much exactly where Saks , Nordstrom , Neiman (Marcus) and everybody else is," said Pali Capital analyst Stacey Widlitz.

Much like Saks, whose CEO Stephen Sadove said earlier this month that consumers were in a "frozen mode," Tiffany said it was unsure about when sales would pick up.

"It is impossible to know when consumer confidence will be restored," the jeweler's Chief Executive Michael Kowalski said in a statement.

Tiffany's outlook punctured investor hopes and added new worries about the holiday shopping season, which some industry experts predict will be the worst since the early 1990s. Its shares fell as much as 10 percent, but regained some of those losses to trade 4.3 percent lower by late morning.

The New York-based jeweler expects full-year net earnings of $2.30 to $2.50 per share, with sales unchanged to down 2 percent. It previously forecast sales growth of about 9 percent and earnings of $2.82 to $2.92 per share for the year.

For the current quarter, which includes the holidays, Tiffany expects worldwide sales to decline 13 percent to 20 percent. U.S. sales will still be among the hardest hit -- the company forecast U.S. same-store sales to decline 25 percent to 30 percent in the fourth quarter.

Tiffany's results followed reports from mid-tier rivals Zale Corp and Signet Jewelers Ltd on Tuesday. Both jewelers posted deeper-than-expected losses and Zale withdrew its full-year outlook.

WEAK NOVEMBER

So far in November, sales softened from the level at the end of the reported quarter, Tiffany said. It warned that weak sales would persist through the current quarter, which includes the key holiday shopping season.

Besides cutting staff, Tiffany will also trim capital expenditures and pursue other cost-cutting efforts. That will include slowing its store growth rate to 5 percent to 6 percent in 2009, against its long-term plan for 8 percent to percent growth, CFO James Fernandez said in a conference call.

Tiffany temporarily suspended share buybacks to conserve cash, Fernandez said. Spokesman Aaron said that despite its sales hurdles, the company would not offer items on sale.

Spokesman Mark Aaron declined to give details on job cuts, but said it would be a mix of store staff and other jobs.

Tiffany's net profit fell to $43.8 million, or 35 cents per share, in the third quarter ended October 31, from $101.5 million, or 73 cents per share, a year earlier.

In the year-earlier quarter, Tiffany posted an after-tax gain of 48 cents per share from the sale and leasing back of its Tokyo flagship store, and contributed $10 million to the Tiffany & Co foundation.

Analysts, on average, expected a profit of 24 cents a share, according to Reuters Estimates.

Worldwide sales fell 1 percent to $618.2 million, while sales at stores open at least one year declined 7 percent.

The company had 204 stores as of October 31.

Its shares were down 63 cents at $20.20, after falling as low as $18.70 earlier on the New York Stock Exchange, and have shed nearly 57 percent of their value this year. Signet shares fell 8.4 percent on Wednesday while Zale rose 26 percent, recouping some of its losses from the previous day.

(Editing by Lisa Von Ahn and Derek Caney)

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