The closure of all Tiffany stores during the pandemic, including its flagship on Fifth Avenue, led to a 45 per cent tumble in sales to $556m in the last quarter © Bloomberg

Tiffany has reached an agreement with lenders to amend its debt covenants, further complicating the ability of luxury conglomerate LVMH to renegotiate a deal it struck before the pandemic to buy the US jeweller for $16.5bn.

Bernard Arnault, Europe’s richest man, who heads LVMH, has been looking for ways since the coronavirus outbreak to renegotiate the takeover, the largest in the luxury sector, according to people familiar with the matter.

One tactic available to LVMH, owner of Louis Vuitton, Dior and Sephora, would be if Tiffany breached the terms of its borrowing facilities, which is not permitted under the merger agreement, the people said.

However, alongside its report of a quarterly loss after a tumble in sales, Tiffany said on Tuesday that it was in compliance with all borrowing covenants as of the end of April and had recently amended debt agreements to create additional headroom. Among other changes, the amendments increase the company’s permitted leverage ratio.

Before coronavirus hit the luxury goods sector, LVMH had coveted Tiffany, which was founded by Charles Lewis Tiffany in 1837 and has about 325 stores globally, including the flagship on New York's Fifth Avenue.

The conglomerate ultimately offered a 37 per cent premium to the New York-listed company’s undisturbed share price. 

As well as expanding its interests in jewellery, Tiffany gives the Paris-listed company greater exposure to the US, its second biggest region by sales after Asia.

But the latest results show how sharply the jeweller’s fortunes have declined since the deal was struck late last year. Coronavirus forced the company to close all its retail stores globally during the first quarter.

Net sales dropped 45 per cent from a year ago to $556m in the three months to the end of April, as all its biggest geographical markets had similarly large declines. Tiffany fell to a net loss of $65m compared with earnings of $125m last time.

Alessandro Bogliolo, Tiffany’s chief executive, on Tuesday reiterated his commitment to the deal with LVMH.

“I am confident that Tiffany’s best days remain ahead of us and I am excited we will be taking that journey with LVMH by our side,” he said in a statement.

Despite the quarterly slump, Mr Bogliolo said that the company’s sales had risen sharply in China in April and May, which was “indicative that a robust recovery is under way”. He added that first quarter ecommerce sales rose 23 per cent.

Tiffany said the change to its borrowing terms was “a precautionary measure in order to maintain flexibility with respect to its liquidity sources and provide additional financial maintenance covenant headroom”. It added that many other companies had made similar adjustments during the pandemic.

Shares in Tiffany rose 2 per cent in New York early trading on Tuesday.

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