By Yashaswini Swamynathan
(Reuters) - Tiffany & Co (N:TIF) posted a 15 percent drop in quarterly earnings due to a strong dollar and the cost of developing and bringing out new products, sending shares of the luxury jeweler to an 18-month low.
The company, known for its pale blue boxes and iconic Tiffany Diamond, also forecast a surprise 2-5 percent decline in earnings for the year ending January.
Tiffany's shares fell as much as 4.2 percent.
Though still a byword for luxury jewelry, Tiffany has been slow to innovate while the market has grown to offer customers a wide variety of high-end jewelry.
The company, founded in 1837, is spending heavily on designing and marketing contemporary gold and silver jewelry to appeal to a younger, more style-conscious consumer.
Among its newest products are the Tiffany T jewelry collection - described by the company as "unapologetically modern" - and Swiss-made CT60 watches. The company is also revamping some of its older lines.
These costly steps, designed to boost sales in years to come, will eat into profit in the short term, said Brian Yarbrough, analyst at Edward Jones.
The company's second-quarter profit fell to $104.9 million, largely due to a 9 percent increase in selling, general and administrative expenses, which includes marketing.
A strong dollar has also dented the amount spent by tourists at Tiffany's flagship Fifth Avenue store in Manhattan, besides reducing the value of the company's overseas sales.
The average value of the dollar (DXY) in the May-July period rose about 19 percent from a year earlier.
The company's sales in the Americas fell 2 percent in the quarter ended July 31. Total revenue fell 0.2 percent to $990.5 million, while analysts had expected sales of $1.0 billion.
Excluding currency effects, revenue rose 7 percent.
Hakon Helgesen, retail analyst at Conlumino, said Tiffany "must rely on product innovation and marketing and not just on careful management of the vagaries of exchange rates."
Tiffany's full-year profit forecast translates to about $3.99 to $4.12 per share. Analysts were expecting $4.26 per share, according to Thomson Reuters I/B/E/S.
"While we believe that Tiffany is now seeing a recovery in its performance, we maintain our view that this year will be one in which the company's financials lack sparkle," Helgesen said.
Tiffany's shares were down 2.3 percent at $83.12 in afternoon trading after touching a low of $81.50. Up to Wednesday's close, the stock had fallen 20.4 percent this year.