There was precious little for investors to celebrate in jewelry retailer Tiffany's (NYSE:TIF) third-quarter earnings report. Mr. Market reacted harshly to the report, sending the stock down more than 6% for the day.

But just how bad was it? Let's go through the numbers.

As for the headline results, they were rough. Tiffany booked a 30% decline in earnings, to just $0.49 a share compared to $0.70 a share in the year-ago quarter. Comparable sales eked out a gain of only 1%. Geographically, revenue was up slightly in the company's U.S. region, but only because price increases offset a worrying drop in unit sales. Europe was Tiffany's best-performing region, up 6% for the quarter.

On guidance, the company cut its forecast for the year. It now expects about $3.30 a share in earnings, down from the $3.50 it had predicted before.

But the biggest disappointment came from the company's plummeting gross profit figure. Surging costs of Tiffany's main inputs, including diamonds and precious metals, ran up faster than prices, leading to a nearly 10% drop in gross margin. The company is by no means alone in this profit squeeze, however. Online competitor Blue Nile (NASDAQ:NILE) also reported a near-five-year low profit margin last quarter.

Yet Tiffany was supposed to be different. The company's stellar brand has allowed it to weather rising input costs by passing much of them along to customers. For example, in the second quarter of last year, CEO Michael Kowalski boasted that Tiffany was "able to absorb precious metal and gemstone cost increases while improving our gross and operating margins."

That impressive trend has come to an abrupt stop.

TIF Gross Profit Margin Quarterly Chart

TIF Gross Profit Margin Quarterly data by YCharts.

What's next?
And the holiday season isn't expected to turn this story around. The company is projecting another year-over-year decline in gross margin for the fourth quarter, with sales forecast to rise 5% to 6% versus the prior forecast of a 6% to 7% bump. So, until input costs start to moderate again, Tiffany's profits and sales look completely vulnerable to economic trends.

Fool contributor Demitrios Kalogeropoulos has no positions in the stocks mentioned above. The Motley Fool owns shares of Tiffany & Co. Motley Fool newsletter services recommend Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.