Luxury retailer Tiffany & Co. on Friday reported a 12% first-quarter increase in net sales to $510 million, led by 11% growth in U.S. comparable store sales. Net earnings rose 9% to $40 million in the quarter, despite weak sales in Japan and a lower gross margin that Tiffany said “reflected shifts in sales mix and higher product costs.” The company said the first-quarter sales and earnings results exceeded expectations.

For the three months, ending April 30, on a constant-exchange-rate basis that excludes the effect from a weaker U.S. dollar, net sales rose 11% and worldwide comparable store sales rose 4%.

Michael J. Kowalski, Tiffany chairman and chief executive officer, expressed pleasure with “the robust growth in our U.S. sales,” following a “very strong quarter last year, as well as growth in many international markets.

“We believe this clearly signifies the enduring appeal of our classic products and demand for our latest introductions, as well as the favorable response to our new Celebration rings campaign. Sales in Japan remained below our expectations, but we will continue to focus our managerial, marketing, and merchandising resources on that market.”

For the rest of this year, he added, “We have a very strong lineup of new product introductions this year and exciting plans for new store openings, all supported by compelling marketing, and public-relations programs. Our full-year objective calls for an 8 to 10 percent net sales increase, including annual comparable store sales growth in a mid-to-high single-digit range in the U.S. and in a low-single-digit range in yen in Japan; the opening of four company-operated stores in the U.S. and at least four internationally; and the opening of additional Little Switzerland and Iridesse stores.”

Sales in Tiffany’s channels of distribution were as follows:

• U.S. retail sales increased 14% to $243.4 million in the first quarter. Growth was primarily due to an increase in the amount spent per transaction, plus a higher number of transactions. Comparable store sales rose 11%, due to 11% growth in the New York flagship store and a geographically broad-based 11% increase in branch stores. The success of new stores opened in the past year also contributed to overall sales growth.

• International retail sales of $190.3 million in the first quarter were 3% higher than the previous year. On a constant-exchange-rate basis, international retail sales rose 1% but comparable store sales fell 6%; on that basis, including a 10% decline in Japan (total retail sales fell 5%), an increased 5% in the Asia-Pacific region outside Japan, and a drop of 3% in Europe.

• Direct marketing sales in the first quarter rose 12% to $41.38 million. Combined Internet and catalog sales rose 14% and business gift sales increased 9% due to a rise in both the number of orders and in the amount spent per order.

• Other sales rose 61% to $34.8 million. The increase was partly due to an 18% sales growth in Little Switzerland stores. In addition, approximately two-thirds of the increase was attributable to the sale of rough diamonds determined, in the normal course of business, to be unsuitable for Tiffany’s production (such sales commenced in the third quarter of 2004 and will continue on a regular basis as a component of the Company’s direct-diamond-sourcing initiatives). Other sales also benefited modestly from growth of Temple St. Clair jewelry sales and from two Iridesse stores, which opened last fall and focus exclusively on the pearl jewelry category.

JCK