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Are US-China Trade Tensions Taking a Toll on Jewelers?

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May. 14 2019, Published 8:07 a.m. ET

Tiffany and Signet stock plunged

Tiffany (TIF) and Signet Jewelers (SIG) fell 6.8% and 11.9%, respectively, on Monday, May 13. The US-China trade spat could be the reason behind the sell-off, as there were no specific news releases about the companies. While investors remain skeptical, it is unclear whether China’s retaliatory tariffs could hurt jewelry retailers.

Signet Jewelers stock is down 36.5% on a YTD basis as of May 13. Signet’s underperformance was due to the continued softness in sales and pressure on margins. Meanwhile, Tiffany stock is up 21.3% so far this year, reflecting an expected improvement in the bottom line in the second half of fiscal 2019.

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What’s ahead for these jewelers?

We expect the top and the bottom line of Signet Jewelers to stay low in coming quarters. Weakness in same-store sales due to a decline in the number of transactions is expected to hurt its top line. Meanwhile, the promotional environment and higher credit costs could continue to hurt its EPS.

As for Tiffany, a decline in tourist spending, especially from Chinese tourists, a strong US dollar, and lower demand could restrict the top line. Meanwhile, investments in growth are expected to hurt its EPS in the near term. However, Tiffany’s bottom line is projected to stabilize in the second half of fiscal 2019, which in turn, is likely to drive a YoY improvement in its EPS for fiscal 2019.

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