By Phil Wahba
March 18, 2016

It might seem stunning that a retailer that sells $85,000 diamond necklaces is facing shrinking profits.

But that’s exactly what Tiffany & Co (tif) told investors to expect for the first half of 2016.

The New York jeweler, famed for its robin’s egg blue boxes and its store on Fifth Avenue, forecast earnings per share would fall 15% to 20% in the first quarter, and then 5% to 10% in the crucial second quarter, which includes two of the busiest times of year for a jeweler: Mother’s Day and the bridal season. After that, profits should improve, barring any new pressure on high-end spending globally.

The big culprit? A strong U.S. dollar has been wreaking havoc with Tiffany and many of its luxury peers for several quarters. That has meant foreign profits translating into fewer American dollars, but also that tourists coming to the U.S., where Tiffany got nearly half its $4.1 billion in sales last year, have cut back on spending while on vacation. (Some 40% of business at the Tiffany flagship store comes from international visitors.)

“We faced various challenges during the year that negatively affected our financial results, especially related to the strong U.S. dollar,” CEO Frédéric Cumenal said in a statement.

Tiffany’s forecast for the year means zero profit growth per share at best, if things do pick up in the latter half of 2016, including the key holiday season. The company is assuming that its worldwide net sales will rise by a low single-digit percentage this year, stripping out the impact of the U.S. dollar.

The outlook comes after a tough holiday season for Tiffany: Fiscal fourth-quarter net sales fell 5.6% to $1.21 billion, while net income declined nearly 17% to $163.2 million, or $1.28 per share, in the quarter ended Jan. 31.

The company has been building up its business in recent years but expanding more deeply in markets like China, relaunching its watch business and overhauling its fashion jewelry business.

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