Luxury jeweller Tiffany & Co on Thursday said quarterly profit fell 11 percent, pulled down by lower sales in Japan and higher inventory and other costs.
The company, whose shares fell more than 11 percent to the lowest level in 15 months, also forecast full-year earnings below analysts' estimates.
Tiffany's business in Japan has been hurt by new luxury competitors entering the market with stand-alone stores. It also has been trying to find the right price to charge customers for silver jewellery to protect the brand's prestige image while not completely driving away customers, one analyst said.
"For the company it's really about finding a balance for the price points," said Stacey Widlitz, analyst at Fulcrum Global Partners LLC. "They really don't want the silver jewellery to be too accessible, but they really don't want it to be too far off for consumers."
The company plans to open two new stores in Japan this year, which Widlitz said should help attract customers who value newness. She rates the stock "buy."
The New York-based company said net income in the second quarter was $36.6 million, or 25 cents per share, compared with $41.1 million, or 28 cents, in the year-earlier period.
Analysts, on average, expected 29 cents per share, according to Reuters Estimates. Sales rose 8 percent to $476.6 million in the quarter ended July 31, including a 2 percent boost from the weak dollar, which lifts the value of sales overseas for US-based companies.
Sales at US stores open at least a year rose 10 percent. But world-wide same-stores sales rose only 7 percent, dragged down by a 4 percent fall in Japan.
"As anticipated, Japan results continued to suffer from weak silver jewellery sales," Michael Kowalski, chairman and chief executive officer, said in a news release. "We are addressing that category with new products and targeted marketing."
The company said it expects same-store sales in Japan to rise by the fourth quarter and also said it expects gross margins to rise in the second half of the year.
Direct marketing sales also weighed on results, with an 8 percent decline.
Gross margin fell to 55.7 percent from 57.6 percent in the year-earlier quarter due to charges for obsolete inventory, expansion of internal manufacturing and diamond sourcing and other items, the company said.