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Tiffany & Co. (NYSE: TIF) was once considered a recession-resistant stock, since demand for high-end jewelry generally stays stable during market downturns. However, the financial crisis a decade ago still took a big bite of Tiffany's sales, and indicated that its average customers weren't affluent enough to withstand the global recession.
Tiffany faces a similar predicament now. Its first-quarter results showed that revenue fell 3% annually to $1 billion, marking its second straight quarter of negative growth, and its net income fell 12% to $125 million. Tiffany attributed those declines to two main headwinds -- a strong dollar throttling its overseas sales and soft tourist spending across its main markets.
Image source: Getty Images.
Tiffany can't do much about currency headwinds, but its heavy dependence on tourists is a bright-red flag. Let's see how softer tourist spending curbed Tiffany's growth over the past year.
How Tiffany lost its tourist shoppers
Tiffany's reported sales declined year over year across all four of its regions during the first quarter:
| YOY sales growth | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 |
|---|---|---|---|---|---|
| Americas | 9% | 8% | 5% | 0% | (4%) |
| Asia-Pacific | 28% | 28% | 4% | (1%) | (1%) |
| Japan | 17% | 11% | 2% | 3% | (4%) |
| Europe | 13% | 5% | 3% | (3%) | (4%) |
Data source: Tiffany quarterly reports. YOY = year-over-year.
The strong dollar took a big bite out of Tiffany's sales in Asia and Europe, where its currency-adjusted sales actually rose 3% and 4%, respectively. Its constant currency sales remained flat in Japan but still fell 4% in the Americas.
Tiffany estimates that sales to tourists accounted for a "low double-digit" percentage of its U.S. retail sales, and those sales fell 25% annually due to fewer purchases from Chinese tourists. During the conference call, CEO Alessandro Bogliolo warned that those declines "were even more pronounced than declines in the second half of last year."
CFO Mark Erceg stated that Chinese tourism in the U.S. mainly declined during the second and third quarters of 2018, and that tourist visits from other countries "really started to denigrate in the fourth quarter and [have] continued since that time."
Those declines can be attributed to the Trump administration's tighter border policies and a strong dollar. International visits to the U.S. rose only 2% in 2018, according to the business journal Tourism Economics, with visits from Asia dipping nearly 1%. This pain could continue as the trade war escalates, China discourages its citizens from visiting the U.S., and Chinese regulators tighten custom checks for big overseas purchases.