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Tiffany & Co. (TIF)
Tiffany & Co. Gets a Reality Check
With fears of a deeper recession or a possible depression looming, it comes as no surprise that consumers are cutting back on luxury items such as jewelry. The last thing on a consumer's mind is a diamond ring or an engraved bracelet. Consumers are either saving every extra dollar they have or spending it trying to maintain basic necessities. Luxury jewelry retailer Tiffany reiterated that point on Monday after reporting that its fourth-quarter income slid 76%. The company cited a combination of various economic issues as the reason for the deep plunge. What were the factors that led to the company experiencing this plunge in income? How long will it take for the company to make a turnaround?
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Last October, Tiffany and Co. was singing a very different tune. At that time, the company was extremely optimistic about consumer spending and forecasted that worldwide sales would grow approximately 9%. The company also said that growth in U.S. store sales in the fourth quarter would be strong. Tiffany believed that their clients were essentially recession proof and would continue to purchase their jewelry despite the condition of the economy. They turned out to be wrong and in actuality some of the wealthy individuals that were purchasing their jewelry are now auctioning off those items to pay for basic necessities. Now the company is projecting earnings of $1.50 to $1.60 a share for this year, and projecting a revenue decline of 11 percent.
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The main factor leading to this reality check was a huge dip in consumer spending. Jobs continue to be cut by the thousands each month, living expenses continue to rise, and consumer confidence continues to decline. All these factors have led consumers to focus on priorities and only spend what is necessary. Rising prices on precious metals was also a factor that contributed to the dip in profit. Investors have been pouring money into the precious metals market over the last few months, mainly looking for shelter from the unstable stock market. Tiffany and Co. is spending more money to make their exquisite jewelry pieces, but have failed to recoup the money because of declining sales. Fourth-quarter sales fell 29% to $458.9 million. The CEO appears to be confident that the company will boost sales in the coming year through new product launches and store openings.
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Unfortunately, it has become very difficult to predict when a company will make a turnaround in these tough economic times. There are definitely more declines on the horizon for Tiffany as consumers try to combat issues fueled by this recession. The economy is still struggling and it may take another two years for it to reach the place that it once was. Until that time, consumers will continue to think twice about purchasing luxury items. It is up to Tiffany and Co. to look at all the problems facing consumers as they think about a plan of action for the coming year. One thing is crystal clear now. Tiffany and Co. clients are not recession proof. Now that the company has received this reality check, investors are anxiously awaiting the company's next move. Despite the news, shares of the luxury jewelry maker advanced 5.5% during morning trading.
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