Holiday jewelry sales look lackluster

By Aarthi Sivaraman

NEW YORK (Reuters) - Jewelers like Tiffany & Co (TIF.N), Zale Corp (ZLC.N) and Finlay Enterprises FNLY.O are set to release holiday sales data later this week -- and analysts are expecting less-than-sparkling results.

During the holiday shopping season, U.S. consumers hit hard by rising costs and a troubled housing market debated if their spare cash should go toward pricey gold or diamonds -- or to filling up their cars' gas tanks.

"Consumers were not really in the mood to spend," said CL King & Associates analyst William Armstrong. "I don't think the numbers are going to look that great."

In many cases, the rising costs for essentials like food and gasoline trumped the desire to buy expensive baubles.

"I believe folks were a little more cautious," said Sherif Mityas, partner and North American industry and service practice leader for global consulting firm A.T. Kearney.

In December, sales of expensive clothing, leather products, jewelry, meals and other luxury items fell 4.1 percent from a year earlier, according to SpendingPulse, MasterCard Advisors' retail data service.

Excluding jewelry sales, which have been a drag for several months, luxury sales rose 6 percent in December -- a month that can account for as much as 25 percent of jewelers' revenue.

GOLD OR GAS?

Zale warned about challenging conditions as early as November, when it reported a quarterly loss and forecast flat to slightly lower same-store sales for the holiday period.

At that time, the company said its core customers, who shop at its mall-based stores, were still cash-strapped and balking at too much discretionary spending.

Zale, whose stock is down 44 percent over the past year, didn't have winning 2005 and 2006 holiday sales, either.

The Dallas-based company tried unsuccessfully to go more upscale with its offerings in 2005, while its heavy discounts in 2006 ended up hurting margins.

In 2007, Zale said it would revise pricing and polish its customer service in an attempt to boost sales.

"I believe it was a dying effort," A.T. Kearney's Mityas said. "I don't believe it worked."

Consumers typically pick Zale more for the discounts and less for a great shopping experience, he added.