Saturday, May 28, 2011

Divergence between high and low-end retailers

Mentioned in a previous post, many retailers suffered cost pinch. Rising raw materials costs have eaten into the profit margin of retailers. Higher gasoline prices have slowed shopping traffic. In addition, slow economic growth has rendered  it hard for retailers to pass on higher costs to customers. The hardest hit sofar have been low to mid end retailers including teenager apparels. However, high-end and luxury goods retailers have sofar dodged the bullets.

According to Associated Press,

High-end jewellers, Tiffany & Co (TIF) reported a 25% jumped in first quarter profits from a year ago across all regions, including even the calamity striken Japan.

According to Sales in Japan rose 7 percent to $123.4 million. However excluding the stronger yen, sales fell 3 percent. Still, that was better than Tiffany expected.

Revenue in the Americas, Tiffany's largest region, rose 19 percent to $374.7 million. The region includes the U.S., Canada and Latin America. Revenue from stores open at least one year rose 17 percent, including a 23 percent jump at Tiffany's flagship store in New York, a mecca for tourists.

Revenue in Asia-Pacific rose 37 percent to $167.2 million. In Europe, revenue rose by a quarter to $85.6 million.

While some had speculated results in Hawaii and Guam might suffer from fewer Japanese tourists, the six-store region's revenue in stores open at least one year actually rose 30 percent.
The company does not have problem passing on costs to customers.
High precious metal and diamond costs caused Tiffany to raise prices earlier this year, and Tiffany said it may raise prices again in various categories and regions to offset the higher costs. "But the rising prices have not deterred shoppers," Investor Relations Vice President Mark Aaron said.
..............."Customers are certainly aware of rising commodity costs and we have not experienced any meaningful resistance to higher prices," he said.
Interestingly, lower priced items such as silver jewelry's growth is constrained
The U.S. economic environment that is affecting spending by some of our silver jewelry customers at entry-level price points will likely remain challenging for a while," Aaron said.

Tiffany's results are echoed by other luxury retailers such as Coach (COH), Neiman Marcus that owns Neiman Marcus and Bergdolf Goodman, Signet (SIG) that operates Kay Jewelers.

Will the divergence persist through this difficult time for retailers or we will see convergence at the downside soon?

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author does not own any of the above mentioned positions in her personal account as of May 28, 2011.

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