Tiffany 3Q Sales Up 18%

Tiffany & Co. reported an 18 percent increase in its net sales for the third quarter, ended Oct. 31, reflecting, what it says, is strong sales in the U.S. and many international markets. Sane-store sales rose 8 percent in the U.S. and 10 percent (on a constant-exchange-rate basis) internationally. Net earnings increased dramatically due to strong operating performance and a gain on the sale-leaseback of Tiffany’s flagship store in Tokyo.

Net sales in the third quarter increased 18 percent to $627.3 million. On a constant-exchange-rate basis which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, net sales rose 16 percent due to a 9 percent increase in worldwide same-store sales and sales from new stores.

In the nine-month period (year-to-date), net sales rose 18 percent to $1.8 billion. On a constant-exchange-rate basis, net sales increased 17 percent and worldwide comparable store sales rose 10 percent.

During the quarter, the sale-leaseback of the multi-tenant building housing Tiffany’s Tokyo flagship store was completed for $328 million. The company recorded as other operating income a pre-tax gain of $105 million and a deferred pre-tax gain of $75.2 million will be amortized in SG&A expenses over a 15-year period. The company contributed $10 million after tax, of the proceeds to The Tiffany & Co. Foundation. The sale-leaseback of the single-tenant building housing the company’s flagship store in London was also completed in the third quarter for proceeds of $149 million on that transaction, the entire pre-tax gain of nearly $64 million was deferred and will be amortized in SG&A expenses over a 15-year period.

Net earnings from continuing operations rose 208 percent in the third quarter to $100.5 million from $32.6 million, in the prior year. Net earnings increased 239 percent to $99 million, compared with $29.1 million, in the prior year.

Year-to-date, net earnings from continuing operations rose 76 percent to $213 million, compared with $120.8 million in the prior year. Net earnings rose 64 percent to $185.5 million, which included an after-tax charge of $22.6 million related to the sale of Little Switzerland. Net earnings in the prior year were $113.4 million.

“Tiffany’s focused growth strategies in distribution, merchandising and marketing continue to prove very effective,” said Michael J. Kowalski, Tiffany & Co. chairman and chief executive officer. “We are pleased with our overall businesses in the U.S. and internationally, as well as with product performance ranging from robust diamond jewelry sales to a healthy increase in silver jewelry sales.”

Sales by channel of distribution were as follows:

* U.S. retail sales rose 12 percent to $302.6 million in the third quarter and 16 percent to $946.7 million in the year-to-date due to increases in transactions and in spending per transaction. Same-store sales rose 8 percent in the quarter and 13 percent in the year-to-date. Sales in the New York flagship store surged 25 percent and 28 percent (benefiting from higher sales to local customers and foreign tourists), while same-branch store sales increased 4 percent and 9 percent. During the quarter, the company opened three new U.S. stores, including a store in Las Vegas (the second in that market), Natick, Mass., and Wall Street, New York City. The company operated 68 TIFFANY & CO. stores in the U.S. at the end of the quarter, versus 63 stores a year ago.

* International Retail sales increased 22 percent to $270.85 million in the third quarter and 18 percent to $777.8 million in the year-to-date. On a constant-exchange-rate basis, sales rose 18 percent in the quarter and 16 percent in the year-to-date due to strong growth in most markets and an increase in Japan. Detailed sales results by geographical region are noted on the attached “Non-GAAP Measures” schedule. During the quarter, Tiffany opened six retail locations, including Nagoya Japan, Macau, Malaysia, Hong Kong, London, and Mexico City. The company operated 113 TIFFANY & CO. international stores and boutiques at the end of the period, versus 101 locations a year ago.

* Direct Marketing sales rose 4 percent to $31.37 million in the third quarter due to an increase in the average amount spent per order, and increased 9 percent to $104.7 million in the year-to-date, due to increases in the number of orders and the average amount spent per order.

* Other sales increased 137 percent to $22.4 million in the third quarter and 114 percent to $56.27 million in the year-to-date. Sales growth in both periods was largely due to wholesale sales of diamonds (which increased $12.5 million and $27.8 million). In addition, sales increased in the company’s IRIDESSE stores.

“We are now one month into the all-important November-December holiday season and are pleased with overall sales growth that is meeting our expectations,” Kowalski said. “This has been another active year for store openings and new product introductions, and we believe that Tiffany is competitively well-positioned in our industry. The vast majority of holiday season business is still ahead of us, so it is premature to extrapolate recent results or draw any conclusions about consumer spending. We will report those results on Jan. 11. Therefore, our current financial performance expectations for fiscal 2007 call for net sales growth of approximately 15 percent.”