Investors had a few big worries coming into Tiffany's (TIF) third-quarter earnings report, particularly around the potential for slowing growth and spiking expenses. Unfortunately, while the luxury jewelry retailer affirmed its broader outlook for the fiscal year on Wednesday, it didn't put either of these important concerns to rest in its latest results.

More on Tiffany's operating challenges in a moment. First, here's how the retailer's headline results stacked up against the prior year:


Q3 2018

Q3 2017

Year-Over-Year Change


$1 billion

$976 million


Net income

$95 million

$100 million


Earnings per share




Source: Tiffany's financial filings. 

What happened this quarter?

Sales rose in each of the company's core geographies, but there was a noticeable slowdown in key areas like China, Japan, and the United States. On the bright side, pricing held up and input costs dipped. However, those gains were more than offset by soaring expenses.

A diamond ring.

Image source: Getty Images.

Here are some of the key highlights from the quarter:

  • Comparable-store sales were up 5% after accounting for foreign currency exchange shifts to mark a slowdown from the prior quarter's 7% expansion.
  • Revenue was up in each of its selling regions, but worries about a deceleration in markets like Japan were confirmed by these results. That country saw comps slow to a 1% pace from 9%. The U.S. segment also slowed to 5% from 8% in the prior quarter.
  • Gross profit margin continued inching higher, reaching 62.2% of sales from 61.5% of sales last year. The retailer benefited from steady pricing and slightly lower costs on inputs like platinum and diamonds.
  • Selling expenses shot up by 15% as Tiffany shelled out more cash on labor, marketing, store remodels, and the online selling channel. As a result, operating earnings fell to $126 million, or 12.5% of sales, from $164 million, or 16.8% of sales.
  • The higher expenses more than offset lower tax expenses to send net income lower by 4% despite a 4% increase in global sales.
  • Inventory rose at a 6% rate, leaving the company in a solid position to meet the holiday shopping surge.

What management had to say

Executives highlighted the company's broad-based growth but said global demand was surprisingly weak due to soft tourism sales. "It is worth noting that our sales attributed to local customers continued to grow at a strong rate worldwide and were positive in every region," CEO Alessandro Bogliolo said in a press release.

"This resulted in mid-single-digit net sales growth in the quarter," he continued, "despite lower-than-expected spending attributed to Chinese tourists in the U.S. and Hong Kong and lower wholesale travel-retail sales in Korea."

Looking forward

Tiffany affirmed full-year sales growth guidance that calls for revenue to rise in the high single digits. It also left its earnings targets unchanged at between $4.65 per share and $4.80 per share. The retailer had entered the year expecting more modest profits of between $4.50 and $4.70 per share. Cash flow in 2018 is still expected to reach $600 million and be pressured by the aggressive spending initiatives.

The good news is that those broader sales and profit trends are consistent with management's rebound targets and reflect steady progress on pricing, branding, and demand building. Still, the latest results show that the quick growth acceleration investors were hoping for might not materialize. That means the stock will likely underperform for the time being, until Tiffany can show that its profitability and sales trends are stabilizing.