Tiffany 2nd Quarter Sales Up 19%

Tiffany & Co. reported Thursday that net sales increased 19 percent in the second quarter ended July 31. The luxury retail jeweler credited “geographically broad-based growth across the U.S. and many international markets” for the increase.

Same-store sales for the quarter increased 17 percent in the U.S. and 7 percent (on a constant-exchange-rate basis) internationally, the New York-based company said. The strong sales growth and an improved operating margin led to a 41 percent increase in net earnings from continuing operations. The company recorded an after-tax charge of $23.5 million, related to the pending sale of its Little Switzerland business.

Net sales in the second quarter rose 19 percent to $662.5 million. On a constant-exchange-rate basis which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, net sales increased 20 percent and worldwide same-store sales increased 13 percent.

In the first half of the year, ended July 31, net sales increased 18 percent to $1.25 billion. On a constant-exchange-rate basis, net sales rose 17 percent and worldwide same-store sales rose 11 percent.

Net earnings from continuing operations in the second quarter increased 41 percent to $63.2 million, from $44.7 million in the prior year. Including the charge related to the pending sale of Little Switzerland and its losses from operations, net earnings were nearly $37 million, compared with $41.1 million in the prior year.

Net earnings from continuing operations in the first half rose 28 percent to $112.6 million, compared with $88.2 million in the prior year. Net earnings increased 3 percent to $86.6 million, compared with $84.3 million in the prior year.

Sales by channel of distribution are as follows:

* U.S. Retail sales increased 20 percent to $345.3 million in the second quarter and 17 percent to $644 million in the first half primarily due to increased spending per transaction as well as some increase in the number of transactions. Same-store sales increased 17 percent in the quarter and 15 percent in the half. In those respective periods, sales in the New York flagship store rose 31 percent and 29 percent, which partly reflected strong sales to foreign tourists, while comparable branch store sales rose 14 percent and 12 percent. The company operates 65 TIFFANY & CO. stores in the U.S. at the end of the quarter, versus 60 stores a year ago.

* International Retail sales rose 16 percent to nearly $260 million in the second quarter and 16 percent to $507 million in the first half. On a constant-exchange-rate basis, sales increased 17 percent in the quarter and 15 percent in the first half as a result of strong growth in most markets except Japan, the company said. Tiffany opened a store in Hamburg, Germany, in the second quarter and operates 107 TIFFANY & CO. international stores and boutiques, versus 97 locations a year ago.

* Direct Marketing sales increased 12 percent to $40.1 million in the second quarter and 12% to $73.4 million, resulting from increases in the number of orders and in the average amount spent per order.

* Other sales rose 151 percent to $18.1 million in the second quarter and 101 percent to $33.8 million in the first half. Sales growth in both periods was largely due to wholesale sales of diamonds (which increased $10.1 million in the quarter and $15.3 million in the half). In addition, sales increased in the Company’s IRIDESSE stores. Results for the Little Switzerland business are no longer included in this channel and have been recorded in discontinued operations.

“These sales results, which exceeded our expectations, are continued confirmation of the strength of the TIFFANY & CO. brand around the world and continue to validate the effectiveness of our focused distribution and product strategies,” said Michael J. Kowalski, Tiffany chairman and chief executive officer. “While diamond jewelry continued to perform exceptionally well, led by strength in engagement jewelry, we were also pleased with growth in many other jewelry categories and with the overall balance of our product mix between aspirational and accessible price points.”

Regarding the company’s pending sale of its Little Switzerland business to NXP Corp., Kowalski said, “After owning Little Switzerland for almost five years, we concluded that our Company can more productively and profitably benefit from largely focusing on the growth potential of the TIFFANY & CO. brand.”

In another development, the company reported that it had sold the land and building housing its Tokyo flagship store located at 2-7-17 Ginza for the price of $328 million and simultaneously entered into a long-term lease. Tiffany had purchased the property in 2003 for approximately $140.4 million. This transaction is expected to result in a pretax gain of approximately $104 million after tax, which will be recorded in the company’s third quarter ending Oct. 31, and a deferred gain of approximately $75, million, which will be amortized in SG&A expenses over a 15-year period. The transaction is not expected to have a significant effect on future earnings. The company said it plans to use most proceeds from the sale for general corporate purposes, but intends to contribute $10 million to The Tiffany & Co. Foundation in the third quarter.

Commenting on the company’s full-year 2007 outlook, Kowalski said, “We are experiencing a good start to the third quarter with overall U.S. and international sales growth in August to-date achieving our expectations. In the coming months, we will be opening a number of new stores in attractive markets, while continuing to expand our product offerings with compelling new designs. Based on current conditions, our planned initiatives, and a continued favorable retail environment, our financial performance expectations for fiscal 2007 call for a net sales growth of approximately 14 percent.”