Sales up, profit down at Tiffany

Tiffany & Co. on Thursday reported a net sales growth of 9 percent, driven by increases in U.S. and international same-store sales. Net earnings declined primarily due to a prior-year tax benefit, the luxury jeweler said.

Sales for the second quarter (ended July 31) totaled $574.9 million compared with $526.7 million for the second quarter of the prior year. On a constant-exchange-rate basis, which excludes the effects of translating foreign-currency-denominated sales into U.S. dollars, net sales increased 10 percent and worldwide comparable store sales rose 6 percent. 

Second quarter profit fell 19 percent to $41.1 million compared with $50.5 million for the same period of the previous year. Earnings in the prior year included a tax benefit of $6 million, related to the repatriation provisions of the American Jobs Creation Act of 2004. Earnings before income taxes declined 4 percent.

In the first half of the fiscal year, (the six-month period ended July 31) net sales of $1.11 billion were 7 percent higher than $1 billion a year ago. On a constant-exchange-rate basis, net sales increased 9 percent and worldwide comparable store sales rose 5 percent.

First half profit fell 7 percent to $84.3 compared with $90.6 million in the prior year. Earnings in the prior year included AJCA tax benefits of $8.1 million. Earnings before income taxes increased 4%.

“We anticipated these first half results due to above-average expense growth, but they do not reflect Tiffany’s historical performance or earnings power,” said Michael J. Kowalski, chairman and chief executive officer. “Our ongoing plans for store openings and new product introductions sustain our confidence in Tiffany’s ability to achieve higher rates of growth over the long-term.”

He added, “Comparable store sales in August-to-date include a return to mid-single-digit growth in the U.S., double-digit growth in many international markets, and a high-single-digit decline in Japan,”

Sales by channel of distribution were as follows:

* U.S. retail sales increased 8 percent to $288.5 million in the second quarter and 5 percent to $549.1 million in the first half. Same-store sales increased 5 percent in the quarter.

* International retail sales increased 10 percent to $223.15 million in the second quarter and 12 percent to $438.3 million in the first half. On a constant-exchange-rate basis, sales rose 12 percent in the quarter and 16 percent in the first half due to 6 percent and 11 percent total retail sales growth in Japan and solid growth in most other countries. Same-store sales increased 10 percent in the quarter and 13 percent in the first half. By region, Japan sales grew 2 percent in the quarter and 7 percent in the half in Japan; in the Asia-Pacific region (outside of Japan) sales grew 27 percent for the quarter and 24 percent in the half.; and in Europe, sales grew 17 percent for the quarter and 20 percent for the half.

* Direct marketing sales increased 18 percent to $35.7 million in the second quarter and 11 percent to $65.7 million in the first half. The increases in both periods were due to growth in the number of orders and in the average amount spent per order.

* Other sales in the second quarter increased 4 percent to $27.5 million and sales of $61 million in the first half were equal to the prior year. LITTLE SWITZERLAND sales rose 10 percent and 3 percent in the respective periods. The company said it continues to expand its IRIDESSE stores, which focus on pearl jewelry.

“For this third quarter, we are looking for a mid-single-digit increase in earnings before income taxes, and net earnings,” Kowalski said. “Our expectation for the full year calls for a low-double-digit increase in earnings before income taxes for 2006… This projection assumes: high-single-digit net sales growth, including mid-single-digit comparable store sales growth in the U.S. and low-single-digit growth in Japan along with greater increases in other international regions; gross margin approximately equal to the prior-year; and high-single-digit SG&A expense growth.”