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Tiffany, Lululemon Divide the Luxury World

Updated for stock price trends.

NEW YORK ( TheStreet) -- Are the luxury retailers that have held up so well during the slumping economy finally starting to show cracks or can they still power through tough times?

As the ICR XChange conference kicks off in Florida today, some retailers are providing earnings guidance updates ahead of scheduled presentations. At a glance, the pre-announcements have been mixed.

Of most interest was the divergence in high-end retailers Lululemon (LULU - Get Report) and Tiffany (TIF - Get Report). Better-than-expected sales at Lululemon drove management to raise fourth-quarter earnings guidance in a big way today, while lower-than-anticipated sales at Tiffany led to a worse outlook.

So far Tiffany's stock is trading down 11% today and Lululemon is trading up almost 12%.

The bifurcation between the spending strength of the high-end consumer and the low-end consumer has been steady over the past few years. Amid unemployment of more than 10%, luxury retailers still made a lot of money. Tiffany's news today raises concerns that the high-end consumer could be faltering.

Jewelry is typically one of the best-selling items during the holiday season, as it's a popular gift for men to given to the special lady in their lives. So the weakness is surprising.

Soft sales were reported in all geographic segments, except for Japan. The New York flagship, which represents about 8% to 9% of total sales, reported lower same-store sales over the holidays. Tiffany noted in its press release that "higher sales to tourists from outside the U.S. were partly offset by weakness in spending by U.S. customers."

While it seems high-end consumers are reining in their spending on jewelry, the middle class seems to be holding up OK -- both Signet (SIG - Get Report), which operates Kay Jewelers and Jared retail stores, and Zale Corp. (ZLC) reported good sales over the holidays.

Still, Americans didn't hold back from buying yoga pants this holiday season, Lululemon's update shows. Christine Day, Lululemon's CEO, said consumers "have responded exceptionally well to the robust assortment and bright color palette for the holidays, and momentum continues with the new spring product offerings."

Comparable-store sales at the retailer are expected to increase by a low- to mid-20s percentage in the fourth quarter, up significantly from management's original guidance for a low- to mid-teens increase. Now, that could be related to all those New Year's resolutions to work off those extra holiday pounds, especially when sales are being completed at full prices instead of discounts.

Tiffany isn't scheduled to present at the ICR conference this week, so we'll have to wait until they release earnings in March to get a better idea for how the high-end offering performed versus the more aspirational goods.

Lululemon is set to present at ICR on Wednesday. Commentary from companies reporting at the conference will be closely watched by investors for clues on which type of consumer is holding up best.

Fourth-quarter earnings growth for the S&P 500 has been halved to a 7.8% increase recently. Shares of consumer-goods companies were the second-best-performing industry last year, increasing 12%, so absent any major improvement in jobs and income growth, it may be time for them to give back some gains.

-- Written by Lindsey Bell in New York.

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ZLC $21.02 -0.66%
LULU $66.73 1.80%
SIG $109.48 0.85%
TIF $72.07 1.00%
AAPL $93.66 -0.09%


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