Dramatically lower worldwide spending attributed to foreign tourists along with foreign exchange headwinds drove a 3% decline in worldwide net sales and a 5% dip in comparable sales during the three-month period ended April 30, 2019, Tiffany & Co said while releasing its first quarter results this week.

However, on a constant-exchange-rate basis worldwide net sales remained flat and comparable sales dropped 2%, the Company said, adding that global sales attributed to local customers, a core focus area, led by sales in China, grew over last year’s very strong sales results.

The results overall reflected a mixed performance across regions and product categories, Tiffany noted.

Net earnings of $125 million were 12% lower than the prior year’s $142 million, and net earnings per diluted share were $1.03 versus $1.14 in the prior year. This also reflected a lower operating margin, as well as the benefit from a lower-than-anticipated effective income tax rate, the Company said.

Giving a region-wise break-up of its Q1 performance, Tiffany noted:

In the Americas, total net sales declined 4% to $406 million, and comparable sales declined 5%; on a constant-exchange-rate basis, both total net sales and comparable sales declined 4%. Management attributed these sales declines largely to lower spending by foreign tourists, which represented a continuing negative trend from the second half of last year.

In Asia-Pacific, total net sales declined 1% to $324 million and comparable sales declined 5% due to the effect of foreign currency translation; on a constant-exchange-rate basis, total sales rose 3% and comparable sales were equal to the prior year. These results reflected a continuation of strong growth in mainland China and mixed results in other markets. These sales results also reflected lower spending attributed to foreign tourists.

In Japan, total net sales declined 4% to $145 million and comparable sales declined 4%; on a constant-exchange-rate basis, total sales and comparable sales were equal to the prior year. These sales results were affected by lower spending attributed to foreign tourists.

In Europe, total net sales declined 4% to $102 million and comparable sales declined 7%; on a constant-exchange-rate basis, total sales and comparable sales rose 4% and 1%, respectively. These results reflected mixed geographical performance across the region.

Other net sales of $26 million were 17% above the prior year, as increased wholesale sales of diamonds more than offset a 17% decline in comparable sales in our stores in the UAE.

Alessandro Bogliolo, Chief Executive Officer, said, “Our first quarter results reflect significant foreign exchange headwinds and dramatically lower worldwide spending attributed to foreign tourists. That said, we were pleased that, at the core of our business, global sales attributed to local customers, led by sales in China, grew over last year’s very strong sales results. We believe this growth in sales to local customers reflects progress in executing our strategic priorities, including innovations across products, communications and the customer experience, and that Tiffany is positioned for improving trends in the second half of 2019.”

Tiffany opened two Company-operated stores in the first quarter, closed two stores and relocated two stores. At April 30, 2019, the Company operated 321 stores (124 in the Americas, 89 in Asia-Pacific, 56 in Japan, 47 in Europe and five in the UAE), versus 314 stores a year ago (123 in the Americas, 87 in Asia-Pacific, 54 in Japan, 46 in Europe and four in the UAE).

Sales results by jewellery category in the first quarter were as follows: Jewellery Collections rose 1%, Engagement Jewellery declined 6% and Designer Jewellery declined 14%; on a constant-exchange-rate basis, those categories increased 4%, declined 2% and declined 11%, respectively.

Tiffany reported that gross margin (gross profit as a percentage of net sales) of 61.7% was below the prior year’s 63.0%. The lower margin largely reflected sales deleverage on fixed costs, changes in sales mix toward higher price point jewellery, and an increase in wholesale sales of diamonds, partly offset by lower product related costs.

Net inventories at April 30, 2019 were 6% above the prior year due to a higher level of finished goods inventories, reflecting recent sales performance and strategic investments in High Jewellery.

The management said that the outlook for Fiscal 2019 was for a low-single-digit percentage increase in worldwide net sales over the prior year; and a continued expectation for a decline in net earnings per diluted share in the second quarter of the year, largely reflecting continuing sales pressures from the effect of lower foreign tourist spending, difficult comparisons to strong growth in last year’s second quarter and sales deleverage on fixed costs.