Luxury jeweler Tiffany & Co. (TIF) Thursday posted an unexpected drop in quarterly earnings and slashed its profit forecast, hurt by lackluster sales in Japan and higher costs for precious metals and diamonds.

Shares of Tiffany fell 7.1 percent on the news.

Third-quarter net income fell to $20.8 million, or 14 cents a share, lower than the analysts' average forecast of 19 cents a share, according to Reuters Estimates.

A year earlier, the company earned $28.0 million, or 19 cents a share.

Total sales in the quarter rose 7 percent to $461.2 million from a year earlier. Sales at stores open at least a year, a closely watched figure known as same-store sales, climbed 4 percent for the quarter.

In a conference call, a Tiffany executive said store traffic softened sharply during the Republican National Convention (search) in New York City in late August.

Tiffany also cited distractions to consumers from the presidential campaign throughout the United States in its latest quarter.

The company said results were below expectations in Japan, where it has changed its product mix, introduced new products, and opened new stores in order to boost business.

Same-store sales in Japan fell 5 percent, partly from disruptions brought by a typhoon and earthquake during its third quarter, the company said.

Tiffany's business in Japan has been snagged by new luxury rivals entering the market with stand-alone stores. It has also been trying to find the right price to charge for silver jewelry to protect the brand's prestige image without turning off customers.

The company said during the conference call that sales in its U.S. Southeast have "rebounded strongly" after a string of hurricanes in the summer.

Tiffany also lowered its forecast for full-year earnings to a range of $1.43 to $1.48 a share, down from its previous view of $1.55 to $1.60.

It expects high single-digit worldwide sales growth in the fourth quarter but said gross margin will be lower than previously expected.

Tiffany also forecast U.S. same-store sales to grow in the mid-single-digit percentages for the quarter. In August, the retailer had expected a high-single-digit increase in U.S. same-store sales.

Tiffany shares were down $2.28, at $29.85, on the New York Stock Exchange (search), where they were among the top percentage losers.