Tiffany 2Q Sales Up 11%

Tiffany & Co. said Thursday that strong net sales growth in Asia-Pacific and Europe led to an 11 percent increase in worldwide net sales in the second quarter.

Combined with a higher operating margin, this resulted in a 21 percent increase in net earnings from continuing operations and a 31 percent increase in earnings per diluted share in the quarter, ended July 31. These results enabled the company to slightly increase its earnings expectation for the full year.

Net sales in the second quarter increased 11 percent to $732.4 million. On a constant-exchange-rate basis which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales rose 7 percent and same-store sales declined 1 percent.

In the first half of 2008, ended July 31, net sales rose 11 percent to $1.40 billion. On a constant-exchange-rate basis, sales increased 7 percent and same-store sales rose 1 percent.

Net earnings from continuing operations in the second quarter rose 21 percent to $80.8 million.

In the first half, net earnings from continuing operations increased 20 percent to $145.2 million.

In the second quarter and first half of 2007, the company had recorded an after-tax charge of $23.6 million related to the sale of its Little Switzerland business, as well as losses from those operations.

Net sales by geographical region were as follows:

* Sales in the Americas region increased 3 percent to $422.4 million in the second quarter and 4 percent to $796 million in the first half largely due to incremental sales from new stores. In the U.S., same-store sales declined 4 percent in the second quarter and 2 percent in the first half; in the respective periods, sales in the New York flagship store rose 5 percent and 10 percent reflecting increased spending by non-U.S. visitors, while comparable branch store sales declined 6 percent and 5 percent. Combined Internet and catalog sales in the U.S. declined 4 percent in the second quarter and 2 percent in the first half. The company said it achieved strong sales growth in Canada and Latin America.

* Sales in the Asia-Pacific region increased 17 percent to $214.2 million in the second quarter and 19 percent to $436.3 million in the first half. On a constant-exchange-rate basis, sales increased 7 percent and 8 percent and same-store sales rose 1 percent and 2 percent in the respective periods. Strong growth in most countries was partly offset by results in Japan, the company said.

* Sales in Europe in the second quarter increased 35 percent to $71 million and 36 percent to $131.1 million in the first half. On a constant-exchange-rate basis, sales rose 29 percent and 30 percent in the respective periods due to same-store sales growth of 11 percent and 12 percent and sales from new stores.

* The company operates approximately 196 TIFFANY & CO. stores and boutiques at (82 in the Americas, 95 in the Asia-Pacific region, and 19 in Europe); compared with 172 stores (74 in the Americas, 83 in Asia-Pacific and 15 in Europe) a year ago.

* Other sales increased 37 percent to $24.7 million in the second quarter and 10 percent to $37.2 million in the first half, largely due to increased wholesale sales of diamonds in connection with the company’s diamond sourcing program.

“Tiffany’s global retail operations once again demonstrated the ability to generate strong operating earnings growth despite weakness in certain individual country markets,” said Michael J. Kowalski, chairman and chief executive officer. “Our continued expansion throughout Asia and Europe should contribute to increasingly consistent and resilient long-term earnings growth.”

Other financial highlights:

* Gross margin (gross profit as a percentage of net sales) increased in the second quarter and first half to 57.8 percent and 57.4 percent, respectively, from 56.1 percent in both prior-year periods. The increases largely reflected favorable changes in geographic and product sales mix, as well as sales leverage on fixed costs.

* Net inventories at July 31, increased 10 percent from a year ago to $1.51 billion, largely due to increased raw material and work-in-process inventories for manufacturing operations, inventories for new store openings, and currency translation.

* The company repurchased and retired 1,723,201 shares of its common stock in the second quarter at a total cost of $73.7 million. In the first half, the company repurchased and retired 3,105,801 shares of its common stock at a total cost of $128.5 million. Under the current program, as of July 31, there remained $492 million available for future repurchases through January 2011.

“Tiffany’s increased sales and earnings so far this year are notable in view of the substantial growth achieved in the first half of last year, which had included an 18 percent sales increase and a 29 percent increase in net earnings from continuing operations,” Kowalski said. “While we acknowledge that challenging economic and consumer conditions exist in the U.S., as they have for several quarters, our first half results and the most recent worldwide trends keep us on track to meet our full year sales and earnings growth expectations.”

Tiffany, in its outlook, said it expects worldwide sales growth of approximately 9 percent, based on continued strong growth in Europe and Asia-Pacific (other than Japan) and a return to growth in comparable U.S. store sales in the fourth quarter due to an easier year-over-year comparison. The company now also expects the full-year operating margin to increase slightly over the prior year.