Dive Brief:

• Tiffany reported its first sales increase in eight quarters, with strong demand in Asia mitigating a slowdown in the U.S. market.

• While the upscale jeweler's same-store sales fell 2% in the third quarter, beating Consensus Metrix expectations for a 2.8% decline, Japan sales grew 13% to $150 million, China sales rose by “double digits,” Korea hosted “solid retail and wholesale sales growth” and sales declines decelerated in Hong Kong.

• Tiffany's worldwide net sales rose 1% in Q3 to $949 million amid a “modest increase” in fashion jewelry sales offset by softness in other product categories, the company said. On a constant-exchange-rate basis, Q3 worldwide net sales were unchanged from the prior year and same-store sales declined 3%.

Dive Insight:

Tiffany has been scrambling in recent quarters as tourist sales have dropped off thanks to the strong dollar (though that strength aided its success in Asia this quarter). The company has moved more assertively online, inking a deal with Net-A-Porter to reach millennials without resorting to price reductions.

Tiffany's third-quarter performance is a good sign coming off a weak second quarter, but the retailer has farther to go, considering that its modest improvement is coming off easy-to-beat year-ago numbers, according to Neil Saunders, CEO of research agency and consulting firm Conlumino.

“In our view these are rather technical gains, and are not growth produced by a sound underlying strategy,” Saunders said in an email to Retail Dive. “Notably, the impact of the strong dollar on sales to tourists at Tiffany’s flagship stores now seems to have dissipated and annualized out; if anything, the company noted that tourist sales were relatively strong over the quarter. This dynamic means the blame for the dip comes, primarily, from domestic demand. Here our data show that Tiffany continues to suffer from a decline in both the number of American consumers who consider it for jewelry purchases as well as the proportion who end up buying from it. In a category like jewelry, where purchases are relatively infrequent, not being firmly on the consumer radar is an issue as it gives Tiffany little opportunity to recapture ‘lost’ spending.”

It doesn’t help Tiffany that younger consumers are attracted to newcomers like Blue Nile, recently acquired by Bain Capital, or that department stores are faltering as a dependable sales channel, according to Saunders. “These represent the new growth spots of consumer demand in jewelry — spots to which Tiffany, with its ‘old world’ image, do not have immediate and ready access,” he said.

It also doesn’t help that Tiffany’s flagship is so close to Trump Tower in New York, which has seen a rash of protests, especially since the election, and which could suffer further from increased security in the area as president-elect Donald Trump has said he’ll be spending significant amounts of time at his home and office in that building. 

Tiffany must also address struggles in the European market. “While sales in Japan benefited from a favorable exchange rate, Europe had no such tailwind,” Saunders warned. “The depreciation of sterling and the euro saw sales decline by 10% on a total basis and by 14% on a same store basis. Even so, underlying demand in the region – like in the U.S. – remains soft. Tiffany has a lot more work to do before it gets into sustainable growth.”

Tiffany CEO Frederic Cumenal acknowledged as much in his statement Tuesday, and said that new designs in jewelry and watches will pay off. 

"We are encouraged by some early signs of improvement in sales trends, but we clearly need more positive data over time before this can be considered an inflection point," Cumenal said. "As the global environment continues to reflect economic and other challenges that we believe are continuing to affect customer demand, it is more important than ever that we remain focused on strategies to deliver extraordinary products and experiences to our customers. Over the long term, our objective is to enhance profitability and productivity through sales growth and prudent expense and inventory management, while further strengthening our competitive position among global luxury brands."