Tiffany quarterly earnings fall despite rise in sales

Tiffany & Co. on Thursday said second-quarter profits fell 11%, pulled down by lower sales in Japan and higher inventory and other costs. However, the luxury jeweler also reported a net sales increase of 8% for the quarter (ended July 31), including a 10% increase in U.S. same-store sales. The increase in U.S. sales, which was defined by the luxury jeweler as “broad-based across most locations” was not sufficient to offset a sales decline in Japan, higher inventory, and other costs.

In the second quarter, net sales rose 8% to $476.5 million, compared with $442.5 for the same period a year ago. Worldwide comparable store sales rose 7%. “Both net sales and comparable store sales growth benefited by 2% from the effect of a weaker U.S. dollar,” the company said. Net earnings were $36.6 million, compared with $41.1 million during the prior year.

For the first half of the year, net sales of $933.5 million were 11% higher than $838.3 million in the first half of 2003. Worldwide comparable store sales rose 10%. Both net sales and comparable store sales growth included a 3% dollar exchange benefit. Net earnings were $77 million for the period, the same as the prior-year.

U.S. Retail sales rose 11% to $236.7 million in the second quarter largely due to comparable store sales growth of 10% (consisting of a 16% increase in New York flagship store sales and 9% growth in comparable branch store sales), the company said. In the first half, U.S. Retail sales increased 17% to $450.4 million, with comparable store sales increasing 14% (due to increases of 22% for New York flagship store sales and 13% for comparable branch store sales). The growth in comparable store sales resulted from an increase in the average amount spent per transaction. During the quarter, the company opened stores in Palm Beach Gardens, Florida and in Edina, Minn., and currently operates 53 TIFFANY & CO. stores in the U.S.

International retail sales increased 7% to $181 million in the second quarter and comparable store sales increased 2%. In the first half, international retail sales rose 9% to $365.6 million and comparable store sales rose 5%.

In Japan, total retail sales fell 3% in the second quarter and comparable store sales decreased 4%. In the first half, total retail sales fell 1% and comparable store sales declined 2%. In other Asia-Pacific markets, comparable store sales rose 19% in the quarter and 26% in the half.

In Europe, comparable store sales rose 9% in the quarter and 15% in the half. During the quarter, the company opened a store in Taipei and now operates 92 TIFFANY & CO. stores and boutiques internationally.

Direct marketing sales fell 8% to $40 million in the second quarter and fell 5% to $77 million in the first half, the company said. Combined e-commerce and catalog sales rose 2% in the quarter and 7% in the half, due to an increase in the average order size and a decline in the number of orders. Business sales fell by 26% in the second quarter and 25% in the first half, due to the year-over-year effect of the company’s decision to discontinue service award program sales during 2003.

Specialty retail sales increased 13% to $18.6 million in the second quarter and 12% to $40.3 million in the first half, primarily due to sales growth in LITTLE SWITZERLAND stores. This fall, the company plans to open two stores under the trade-name IRIDESSE, which will focus exclusively on the pearl jewelry category.

“These second quarter results reflect better-than-expected sales performance in Tiffany’s U.S. retail operations, while direct marketing sales were disappointing,” said Michael J. Kowalski, Tiffany & Co. chairman and CEO. “As anticipated, Japan results continued to suffer from weak silver jewelry sales. We are addressing that category with new products and targeted marketing.”