Jewelry Sales Could be the Worst in Two Decades.

Implications: Jewelry stock prices fall to 52 week lows as holiday sales miss expectations.  Industry sales could be the worst in two decades.  Here's the logic. 

Analysis:  Jewelry stocks declined in the wake of news that retail industry sales didn’t meet either retailer’s or investor’s expectations.  For instance, Zale Corp traded at new lows on most of the trading days following Christmas.  Closing at $15.70 on Thursday, December 28th Zale traded at its 52 week low of $15.34 established the day before.  Similarly, Finlay Enterprises which recently purchased the 75 store Bailey Banks, and Biddle chain from Zale in September closed at a new 52 week low of $1.99, while Birks Mayors fared marginally better closing at $5.97, just above its 52 week low of $5.67.   

While jewelry chains won’t announce holiday sales results until early January, it’s possible to get a snapshot of how the industry performed ahead of the official news.  According to the Dow Jones Newswire: “Luxury retailers, including high-end apparel, posted a 7.1% gain, excluding weak jewelry sales. Including jewelry, the luxury category declined 1.9%.  If you do the math, US jewelry sales during the Christmas period may have declined as much as 9%.  Factor in about 5% for retail jewelry inflation because of higher gold, silver, and platinum prices and jewelry sales could have decreased as much as (14%) in constant dollars.  Depending what happens during the last week of December, it looks like the industry sales could decline between (1.5%) and (2.5%) for 2007.  This is in stark contrast to the approximate 2.5% increase during 2006 when measured in constant dollars.

Whether current jewelry stock prices reflect a decline in sales of such magnitude is for investor’s to decide.  But one thing is certain, if jewelry stocks are to rebound, retailers are going to have to convince new investors why such an event won’t repeat itself next year given the likelihood current macro economic conditions are likely to continue well into 2008.