Tiffany (TIF) stock has been unusually volatile this year as investors struggle to forecast its short-term momentum. On one hand, the retailer is on track to achieve its first year of rising sales since 2014 thanks to generally strong economic trends and an improving product line. However, the strength of that growth rebound could be threatened by trade skirmishes and rising spending that's hurting the jewelry giant's profitability.

Let's take a closer look at how those opposing forces might play out in the company's fiscal third-quarter results, set for Wednesday, Nov. 28. 

Global sales trends

Sales growth will be a key focus for investors since robust gains will be needed to put to rest a few worries that cropped up about the business in recent months. For example, Tiffany shares fell in mid-October after a peer complained about a demand slowdown in Japan. That important market grew at a 9% pace for Tiffany in the fiscal second quarter, but it was up by a more robust 14% in the previous quarter. Another deceleration there, or in other key international segments like China and Europe, might threaten the company's rebound pace that, so far, has been 9% through the first half of fiscal 2018.

A diamond ring.

Image source: Getty Images.

As for the U.S. geography, sales gains have been relatively steady at between 8% and 9%, and we'll find out on Wednesday whether there was any shift in demand heading into the critical holiday shopping sales period.

Profitability and spending

Tiffany is having success with recent product launches, and those wins have allowed gross profit margin to rise to 63.5% of sales over the first half of the year compared to 62.3% in the year-ago period. In fact, gross profitability just reached a record high for the company, which is a testament to the strategic sales and cost initiatives that CEO Alessandro Bogliolo and his team have been executing.

TIF Gross Profit Margin (TTM) Chart

TIF Gross Profit Margin (TTM) data by YCharts.

Tiffany is aiming for continued improvements in pricing, but also in sourcing costs for inputs like diamonds, platinum, and steel, which could be impacted by inflation and those growing trade battles. Its gross margin will show how well the company balanced pricing in a challenging cost environment.

The broader outlook for spending is negative since the retailer is allocating more cash toward labor, marketing, and branding. Expenses rose 15% for the first half of the year, after all, to outpace revenue growth. Management says this investment phase is critical to Tiffany's long-run growth, and they believe it will be worth the short-term hit that the company takes to its operating margin. That metric fell to 17.8% of sales last quarter, down from 19.3% a year earlier.

Updated outlook

Tiffany executives will have the benefit of a few days of holiday-season sales metrics to inform their updated full-year forecast on Wednesday. As it stands today, that outlook predicts that sales over the next six months will rise at about the same 9% rate the retailer posted in the first half of 2018. Operating margin is predicted to dip slightly, meanwhile, due to higher investment spending on projects like the renovation of its flagship store in New York City.

Given the stock's price decline heading into the report, Wall Street pros appear to be worried that this short-term outlook will be downgraded on Wednesday. But the more important trends for investors to follow are its long-term recovery in areas like gross margin and global sales as the company aims to achieve its second straight year of sales growth in fiscal 2019.