By Phil Wahba
March 20, 2015

Tiffany & Co (TIF) is not a fan of the surging U.S. dollar.

The jeweler’s shares took a hit on Friday after the company warned investors that the strong greenback would continue to hit sales in 2015. In the last quarter of the fiscal year that ended in January, Tiffany’s sales fell 1% as the Canadian dollar, the euro, and the Japanese yen, among other currencies, declined (when the effects of currency fluctuations are stripped away, sales actually rose 3%).

The arithmetic of translating sales back into U.S. dollars wasn’t the only currency impact that hurt Tiffany’s holiday season quarter: international tourists account for 40% of sales at the retailer’s iconic Fifth Avenue store in New York City, which generates about $1 of revenue of out every $12 for the company, and about 25% of overall U.S. sales. Those tourists pulled back more and more as 2014 wore on, weighing on Tiffany’s sales. (Tiffany stores in tourist destinations such as Miami, San Francisco, and Beverly Hills were also exposed to European and South American tourists pulling back.)

Here are some of the other salient points from Tiffany’s fourth-quarter results and conference call.

1. Tiffany’s lower-priced jewelry is not catching on.

Tiffany may be best known for $50,000 diamond necklaces, but it still gets about 25-30% of its revenue from items costing less than $500, typically silver jewelry. The company has been making some inroads to address criticisms that the lower-priced segment of its product lineup is uninspired, but Tiffany again struggled in the key holiday quarter and sold fewer items at those prices.

Tiffany’s vice president of investment relations, Mark Aaron, attributed the softness in its least expensive items to “a lack of product newsiness and marketing focus and perhaps also to competitive and macro pressures on the jewelry purchaser at those price points.” By contrast, Tiffany said the sales grew in every price bracket above $500.

Signet Jewelers (SIG) reported in January that its Kay Jewelers and Zales mid-tier jewelry chains enjoyed strong sales gains during the holiday, so Tiffany’s woes seem to be stemming more from things under its control than from the macro-economic environment.

2. The new Tiffany T collection is a hit, but taking sales away from other lines.

In 2014, Tiffany launched a new collection of fashion jewelry aimed at shoring up the company’s reputation for trendy jewelry. It was the first line under star design director Francesca Amfitheatrof and has done well out of the gates. Problem is, Tiffany’s heavy ad campaign for the collection didn’t end up helping its other lines as expected, Aaron said.

Here too, Tiffany saw a clear preference by customers for pieces with gold over silver jewelry. The Tiffany T line is aimed at helping Tiffany introduce more fashion-oriented designs at higher prices.

3. Softness in Hong Kong, Macau.

For all the talk of how much mainland China is an important luxury market, Hong Kong remains the epicenter of high end shopping in greater China. And Tiffany’s sales were sluggish in Hong Kong, as well as Macau, in the last two quarters. Hong Kong is important because many affluent mainland Chinese consumers prefer to shop in Hong Kong. Tiffany suspects some tourists to Hong Kong may be diverting their travel or simply shopping more at home.

Reuters reported last week that Hong Kong retail sales in January slid 14.6% from a year earlier, their worst showing since the severe acute respiratory syndrome (SARS) scare in 2003. Still, Tiffany and other luxury brands may get a break: the Hong Kong Retail Management Association (HKRMA) has forecast 2015 retail sales will grow about 5%.

4. Store opening acceleration, new watch line.

These problems aside, Tiffany remains a fast growing brand, having successfully ridden the global luxury boom. In 2014, Tiffany added six stores (including one on Paris’ Champs-Elysées, net of closings) and this year plans to increase its store fleet by 10 to 15 stores, a clip it plans to maintain in subsequent years. Tiffany expects worldwide sales to rise by a mid-single-digit percentage in 2015, and for minimal profit-per-share growth. Tiffany will also launch CT-60 watch collection, its first such collection since the acrimonious end of its partnership with Swiss watchmaker Swatch a few years ago.

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