Tiffany Reports ‘Mixed’ Results

Tiffany & Co. reported that its worldwide sales for the Nov. 1 – Dec. 31, 2007, holiday period increased 8 percent over the prior year to $867.2 million. On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, net sales rose 6 percent and worldwide same-store sales rose 1 percent.
U.S. Retail sales rose 4 percent to $449 million, as increased spending per transaction was partly offset by a decline in the number of transactions. Same-store sales declined 2 percent.
International retail sales rose 18 percent to $334.7 million. On a constant-exchange-rate basis, sales rose 12 percent and same-store sales rose 5 percent due to growth in most countries. Detailed sales results by geographical region are noted on the attached “Non-GAAP Measures” schedule.
Direct marketing sales of $69.9 million were equal to the prior year.
Other sales declined 20 percent to $13.4 million, due to a reduction in wholesale sales of diamonds (which fell by $2.9 million).
“Tiffany’s holiday sales results were mixed but we still expect to achieve strong earnings growth in the fourth quarter ending January 31,” said Michael J. Kowalski, Tiffany chairman and chief executive officer. “While we were delighted with continued strong sales growth across Europe and the Asia-Pacific region outside Japan, U.S. sales softened after robust growth for much of the year. In addition, a 10 percent increase in New York flagship store sales in the holiday period was driven by foreign tourist spending. We believe a recent pullback in U.S. spending likely reflected a more cautious attitude among customers about the near-term direction of the economy and related factors. From a product perspective, we saw healthy sales growth in the engagement jewelry and silver jewelry categories.”
The company’s financial performance expectations for fiscal 2007 call for net sales growth of approximately 14 percent.
“Despite soft U.S. sales, we are still projecting the strong fourth quarter earnings growth (excluding one-time charges) that we expected prior to the holiday season due to substantially better gross margins and expense savings,” Kowalski said. It is also noteworthy that, excluding the various one-time factors, earnings per diluted share for the year should exceed the 15% growth objective we established at the start of 2007.”
Kowalski added that the company has been active in its share repurchase program, spending $321 million to repurchase 6.9 million shares at an average price of $46.73 per share.”
The company has made loans to Tahera Diamond Corp., which, combined with accrued interest, total approximately $50 million. Tahera is currently attempting to raise additional capital necessary for continued operation of its Jericho mine, Tiffany said. If their efforts are not successful or the expectations of the mine’s operations change, the ability for Tahera to continue operations and the development of the mine project may be at risk. As a result, the fair value and collection of the loan receivable may be affected and could result in an impairment charge, which is not included in the above earnings projections.

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