Thursday, August 28, 2008

Diamonds are (still) a girl's best friend

With all this talk of recessions, the subprime mess and the credit crisis, it seems that high-end jewelry still reigns supreme with consumer's checkbooks.

When you think luxury jewelry, Tiffany & Co. most likely comes to mind, right? Well, it does for me -- not only are they geniuses at marketing, they're a historical staple of American consumerism because of it, and, quite frankly, they just seem to know how to tug at my heart strings every time I see a new, robin's-egg-blue catalog in my mailbox. But I digress.

If you don't follow business news, one of the highlights on Thursday was the uptick in Tiffany's stock price, which rose 11% to $43.89 (the biggest increase since August 2005). Tiffany's is second in line globally behind the largest luxury-jewelry seller (that would be Geneva-based Cie. Financiere Richemont AG -- I know, I've never heard of it either), but the company's earnings still say oodles about current global spending habits within the retail milieu.

The jeweler's earnings nearly doubled to $732.4 million, while its profit (up to $80.8 million) and sales far exceeded analysts' estimates. Higher annual earnings were forecasted going forth. Phew! Apparently we really enjoy our baubles, bangles and beads, ladies!

But before you wonder why it seems like you're the only girl who suddenly can't afford Tiffany's jewelry, keep in mind that sales were stronger overseas as opposed to within the 50 states. The company said that total sales were "strong" in Europe (up 35%) and the Asia-Pacific (up 17%), while revenue dropped 4% at its U.S. stores open at least one year, as consumers cut back on discretionary spending on luxury goods in lieu of higher-priced food and gas. Tiffany's did say, though, that it expects its sluggish U.S. sales to climb in the upcoming and most important quarter of the year -- Christmas season! Guess the lyrics from "Santa, Baby" ("Come and trim my christmas tree/With some decorations bought at Tiffany's") really do ring true with women's holiday desires.

Regardless of the slight dip in U.S. sales, everyone was impressed with Tiffany's results in the current global economic environment. The U.S. isn't the only country with fiscal problems: Countries such as China, Argentina and Japan, are also facing problems. In fact, just today Japan unveiled an $18 billion stimulus package to help its unsettled economy. (The country still remains suprisingly challenging for Tiffany's, and does not play a part in the company's Asian-Pacific earnings success.)

"In a really tough economic environment, [Tiffany's] continuously manages to beat expectations,'' Pali Capital analyst Stacey Widlitz told Bloomberg Radio today. "Tiffany has become more of a global brand and its strength in Europe and Asia is really offsetting the U.S. weakness.''

What's ironic is that while Tiffany's was all glitz and gold on Thursday, Zales (which is a leading lower-end American jeweler) actually saw a large loss in its latest earnings. I call it ironic because wouldn't "cheaper" fare better in today's economy, where many are on the hunt for the best deal? Granted, I think Tiffany's quality is far superior than Zales, et al., but for many that quality comes with too high a price tag. I'm sure, though, that the reason Tiffany's is still doing relatively well domestically (a 4% drop isn't that bad) is because of the purchasing power of the upper-middle-class to rich demographic, who remain generally unaffected by the weak economy.

Many people, including my sister (this one's for you, kid!), think that business news is "boring," "dull," and "not that interesting," but it's marvelous how much you can learn about sentiment and the social aspects of our world by looking at the successes and failures of key companies. Tiffany's happens to be in the jewelry marketplace -- who's demand, according to an MSG Consultants jewelry retail report, "is largely determined by the disposable income of consumers."

The report also said that "the increasing amount of affluent individuals, working women, double-income households and fashion-concious men kept jewelry sales strong through 2005," right before the U.S. economy took a dive on the subprime mortgage debacle. Like I said earlier, Tiffany's stock price hadn't risen as much as it did Thursday since 2005.

So, by analyzing successes from such companies, you can begin to see a pattern in domestic and international spending habits within different demographics of people in specific salary brackets as they face certain weak economies. It's truly fascinating stuff, and is fabulous context for your individual ideas on personal finance and spending versus saving. And you thought business news was stuffy and boring!


Budget Mama said...

At first I was shocked about diamond prices still on the rise, but I forgot about the overseas market; and your comment about the upper class still strong in a weak economy is very true.

BTW-I love reading your blog and your writing style is great!

Crystal said...

Yes, I thought the same as you till I started going over the earnings results.

Thank you so much for the compliment! It made my day. :)

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