Harry Winston Q4 Sales Down 37%

By JCK Online Staff -- JCK Online, 4/2/2009 7:55:00 PM

Luxury jewelry retailer and diamond miner Harry Winston Diamond Corp. reported that fourth quarter consolidated sales declined by 37 percent, year-over-year, to $118.4 million.

Retail sales for the period fell 21 percent to $67.3 million. U.S retail sales dropped 50 percent to $18.8 million and Asian retail sales decreased 16 percent to $17.6 million, for the 12-week period, ended Jan. 31.

Rough diamond sales fell more than 50 percent to $51.1 million.

The company said it will be cut production at the Diavik Diamond Mine in Canada’s Northwest Territory, in response to the current challenging market conditions for diamonds. The Diavik diamond mine is a joint venture between Harry Winston and Diavik Diamond Mines, Inc, which is a subsidiary of Rio Tinto. Harry Winston Diamond Corp. owns a 40 percent stake in the mine and Rio Tinto owns a 60 percent stake.

The company recorded a fourth quarter loss of $73 million, compared to net earnings of $90.4 million in the fourth quarter of the prior year. The net loss resulted from a non-cash write-down of the goodwill relating to the retail operations of $93.8 million. The company recognized a net $4.6 million foreign exchange gain. Also impacting results was an after-tax gain on insurance settlement of $9.9 million that resulted from the December 2008 robbery at the Harry Winston Paris salon.

For the year, Harry Winston’s consolidated sales fell 10.3 percent, year-over-year, to $609.2.

The retail segment recorded a 6 percent increase in sales to $281 million, with a loss from operations of $2.5 million compared to a loss from operations of $3.1 million in the prior year. Retail segment SG&A as a percentage of sales remained consistent with the prior year at 48 percent.

The mining segment sales declined 21 percent to $328.2 million, due to lower rough diamond production and lower rough diamond prices in the fourth quarter. Rough diamond production for the calendar year was down 23 percent to 3.7 million carats produced versus 4.8 million for the prior year. Earnings from operations for the mining segment decreased 24 percent to $168.6 million compared to the prior year. The decrease was due primarily to lower sales and to a lesser degree a decrease in gross margin.

The company’s recorded consolidated net earnings for the year declined by 34.1 percent to $70.1 million. Earnings for the year included a non-cash write-down of the goodwill relating to the retail operations of $93.8 million. The write-down was partially offset by a $59.1 million net foreign exchange gain, compared to a net $43.4 million foreign exchange loss in the prior year. Consolidated net earnings also included an after-tax gain on insurance settlement of $9.9 million, compared to $8 million in the prior year.