(Reuters) – Luxury jeweler Tiffany & Co (TIF.N) on Wednesday reported quarterly earnings that beat estimates on a drop in marketing costs even as sales were hurt by lower spending by Chinese tourists in the United States and political unrest in Hong Kong.

The New York-based company also said it would stick to its full-year forecast for a slight increase in sales.

A protracted U.S-China trade war, strong dollar and a stricter U.S. visa approval process have contributed to a near 3% drop in Chinese citizens arriving in the United States this year, pressuring American retailers that are reliant on the high-spending tourists.

Tiffany’s shares were up 3.5% at $85.42 in afternoon trading.

Protests disrupted traffic at Tiffany’s stores in Hong Kong, prompting six days of unplanned closures. If the unrest continues or the situation worsens, full-year sales and earnings could come in at the lower end of forecasts, the company warned on a call with analysts.

Tiffany has 10 stores in Hong Kong, its fourth-largest market.

Chief Executive Alessandro Bogliolo told Reuters that even as currency headwinds and disruptions in Hong Kong persisted, sales in mainland China were robust.

“There is little we can do on tourist slows around the world so our way to react to this is to continue to be more active locally, domestically in China where customers are,” Bogliolo said.

The company is renovating and expanding its flagship store in Shanghai, and a flagship store in Hong Kong is set to open in September. In a bid to lure in new customers and maintain current ones, the company will feature Tiffany Blue Box Cafes in both locations.

The retailer said it will also open and expand certain airport stores in China and Hong Kong.

Tiffany & Co.’s flagship store in Shanghai, China is pictured in this undated handout artist’s rendering obtained by Reuters August 28, 2019. Tiffany & Co./Handout via REUTERS


Tiffany said expenses fell 5% in the quarter, as it suspended much of its digital marketing while revamping its websites. But the company said it expects to spend more on marketing in the second half of the year to entice younger shoppers into its stores and continues to renovate its flagship shop in Manhattan.

The jeweler has worked to refresh its collections with more affordable items such as pendants and earrings to appeal to millennials who have been gravitating to lower-priced competitors such as Denmark’s Pandora A/S (PNDORA.CO) and Signet Jewelers (SIG.N).

Bogliolo acknowledged the company did not launch as many new product assortments in the first half of the year compared with last year when Tiffany unveiled Paper Flowers, its floral jewelry collection made of platinum and diamonds priced between $2,500 and $75,000. “This will be reversed in the second part of the year,” it said.

“We view the macroeconomic noise surrounding Hong Kong protests and lower tourist spending as temporal, and Tiffany is well-positioned to recoup lost profits elsewhere, including mainland China,” said CFRA Research analyst Camilla Yanushevsky.

The company’s quarterly same-store sales, excluding the effects of currency exchange rates, fell 3%. Analysts had expected a 1.3% decrease, according to IBES data from Refinitiv.

FILE PHOTO: A Tiffany & Co logo is seen outside the store on 5th Ave in New York, New York, U.S., March 19, 2019. REUTERS/Carlo Allegri/File Photo

Tiffany’s net earnings fell to $136.3 million, or $1.12 per share, in its fiscal second quarter, ended July 31, from $144.7 million, or $1.17 per share, a year earlier.

Analysts had expected earnings of $1.04 per share.

Net sales fell to $1.05 billion from $1.08 billion, missing Wall Street estimates of $1.06 billion.

Before Wednesday, Tiffany’s shares had fallen nearly 12% this month on U.S. President Donald Trump’s threats to ratchet up a trade war with Beijing.

Reporting by Uday Sampath in Bengaluru and Melissa Fares in New York; Editing by Shounak Dasgupta and Steve Orlofsky

Our Standards:The Thomson Reuters Trust Principles.

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