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Hong Kong protests could further pressure Tiffany's sales in H2'19, execs warn

The ongoing protest in Hong Kong could hurt Tiffany & Co.'s sales and earnings in the second half of the fiscal year, the jewelry retailer's CFO and Executive Vice President Mark Erceg said during an Aug. 28 earnings call discussing the company's second quarter results.

"If, for example, the ongoing unrest in Hong Kong persists much longer at its current rate, we may find ourselves towards the lower end of our full-year reported sales and EPS guidance range," Erceg said.

Erceg added that the retailer's sales and earnings for fiscal 2019 could fall below the lower end of its guidance range if the situation in Hong Kong worsens or continues at the current level for the rest of the fiscal year.

The retailer is expecting net earnings per diluted shares to increase by a low to mid-single-digit percentage, and worldwide net sales are projected to increase by a low single-digit percentage from fiscal 2018.

The protest to challenge an extradition bill by Hong Kong's government resulted in unplanned store closures for six days in the retailer's fourth-largest market, contributing to the 3% decline in worldwide sales during the second quarter, according to the retailer's CEO Alessandro Bogliolo. The continued decline in tourism spending also aided the decline in sales in the second quarter.

"Obviously, we hope for a quick and peaceful resolution to the unrest being experienced there. But in the meantime, we must acknowledge that the current situation is taking a toll on our business," Bogliolo said.

Tiffany & Co. is planning to launch two flagship stores in Hong Kong and Shanghai in the second half of the year.

On the trade front, the retailer is not anticipating "a large additional impact" from China's impending 5% to 10% tariff on $75 billion worth of U.S. imports taking effect in December. The tariffs are expected to go into effect in two sets ⁠— on Sept. 1 and Dec. 15.

"The biggest concern that we have frankly on a longer-term basis is the tariff differential between a company such as ourselves who manufactures most things in the U.S. versus some of the European competitors," Erceg said.

To stay price competitive, the retailer had to absorb the cost of prior tariffs, but a decision on whether to employ the same strategy is yet to be made.

"Whether or not we have to do something like that again, we'll have to make that determination over the next many weeks and months," Erceg said.