Tiffany loses lustre as prices rise for gold, silver, diamonds

THE wives of some high rollers were less dazzled this Christmas - at least if they had Tiffany on their wish lists.

Shares of the jeweller fell 10 per cent overnight after a 4 per cent rise in store sales (comparing same stores) for November and December, 2011 fell short of the 7 per cent spike analysts had expected.

Much of the trouble was in the US, with sales at the New York flagship down 1 per cent. The news is a rare hint of weakness in luxury spending, which recovered quickly after the global financial crisis and helped send Tiffany shares to a record high in the last northern summer.

The big fear is a broad breakdown in sentiment among wealthy consumers. But more likely, luxury shoppers shifted their shopping habits across categories, setting aside some big jewellery purchases for now.

Consider the prices of diamonds, gold and silver, which all rose sharply in 2010 and early 2011. According to estimates by David Schick of Stifel Nicolaus, Tiffany increased retail prices by between 8 per cent and 15 per cent for certain products last year to help absorb some of those cost increases.

But while prices of gold and silver have pulled back in recent months, Tiffany didn't follow suit. That may have put it at a disadvantage, given deep discounts offered by a host of retailers in late November. Even other pricey gift categories, like fashion, may have looked more attractive.

Given recent volatility in stockmarkets, it is reasonable to expect that the wealthy are spending with more care. Tiffany's same-store sales numbers have been strong since turning positive in the fourth quarter of 2009, but growth is harder as Tiffany approaches peak 2007 levels.

While the high-end consumer still looks healthy, continued improvement in sales of luxury items won't be spread evenly.