Luxury Reset

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Tiffany’s holiday sales surprised, coming in weaker than expected despite strong growth in Asia Pacific. 4Q guidance was reduced and management indicated the FY2015 outlook would be tempered by the strong US$ and global economic pressures
Luxury executives at the January 13th Luxury First Look conference generally agreed industry sales would accrete at a 3% – 5% pace in 2015, this compares with the Bain Altagamma estimate for a 7% increase in 2014
2015 headwinds slowing luxury growth include the continued weak European economy, the slowing of Chinese and Russian luxury demand, and the increasingly volatile global stock markets
The US, the largest luxury market is also the ‘emerging luxury market’ in 2015 according to luxury executives at Luxury First Look, reflecting growing economic momentum and international tourism

 

A STRONG US $ HURTS!

Tiffany reported holiday sales of $1.02 billion for the November/December period. Sales declined 1% with the strengthening US$ penalizing topline results; Tiffany’s global sales increased 3% on a currency adjusted basis. North American comps decreased 1% and US sales were off 1% as well. While the new line of Tiffany “T” generated strong sales of fashion gold jewelry, it didn’t translate into broader sales momentum in other jewelry categories.

By region, Asia-Pacific sales rose 10% and comps 6% in constant currency, 7% in US$ to $210 million; Japan sales declined 3%, comps were off 8% and in US$ sales declined 16% to $113 million; and in Europe sales rose 9%, comps were up 4% and in US$ sales increased 1% to $133 million.

Tiffany brought down its 4Q EPS estimate to $4.15 to $4.20 from $4.20 to $4.30 and management indicated the FY2015 outlook would be tempered by the strong US$ and global economic pressures which the company anticipates will result in its planning for low-to-mid single-digit sales and earnings growth.

LUXURY OUTLOOK

Luxury executives at the January 13th Luxury First Look conference generally agreed industry sales would accrete at a 3% – 5% pace in 2015, this compares with the Bain Altagamma estimate for a 7% increase in 2014. On a more granular level, the Bain Altagamma 2014 projection is driven by a 10% increase in sales of luxury cars and a 9% gain for luxury hotels and private jets. For the traditional personal luxury goods categories spanning accessories, apparel, beauty, and jewelry and watches, 2014 is expected to be the second consecutive year of 2% growth. This latter data point makes the luxury executives we spoke with seem somewhat optimistic.

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2015 headwinds slowing luxury growth include the continued weak European economy, the slowing of Chinese and Russian luxury demand, and the increa
singly volatile global stock markets. More episodes of terror are a wild card that would likely further reduce demand for luxury products.

The US, the largest luxury market is also the ‘emerging luxury market’ in 2015 according to luxury executives at Luxury First Look, reflecting growing economic momentum and international tourism. Despite the iWatch launch, luxury professionals anticipate jewelry and watches would see moderate growth in 2015 while apparel would have a more difficult year as consumers are opting for bespoke and unique merchandise, and generally, experiential luxury (spas, fine wines, resorts) is enjoying momentum.