Tiffany’s Q4 Profit Falters a Bit, But Outlook is Strong

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New York—Tiffany & Co. reported today that its fourth quarter profit was down for the first time in more than two years, but shares of the luxury jeweler increased upon its better-than-expected outlook for this year.

For the quarter ended Jan. 31, Tiffany said net profit fell 2% to $178 million, or $1.39 a share, from $181 million, or $1.41 a share. The company cited rising precious metal and diamond costs as denting its income.

Total sales rose 8% to $1.19 billion. Excluding currency fluctuations, total sales increased 7%. Total comparable store sales were up 5%.

While the earnings just missed analysts’ average estimate for $1.42 a share, sales exceeded analysts’ forecast for $1.18 billion.

Tiffany had said in January that holiday sales had slowed and it would cut its outlook for the fiscal year.

Nonetheless, based upon growth trend in the Americas and Asia, the company gave a more positive forecast for this year, expecting a profit of $3.95 to $4.05 a share on sales rising about 10%. That’s ahead of analysts’ average estimate for $3.93 a share with sales increasing 7%.

“While it is obviously still quite early in this new fiscal year, we are pleased that worldwide sales growth is tracking in line with our internal expectations,” said Michael Kowalski, chairman ceo. “Our expansion strategies and spending plans are appropriately prudent and will ultimately contribute to strong relative performance within the luxury jewelry industry.”

Foreign Tourists Help Americas’ Sales

In its Americas division, fourth quarter sales wound up better than expected thanks to an increase in sales to foreign tourists and a pickup in sales on upper-end fine jewelry. Sales in the Americas increased 5% to $605 million, ahead of the company’s 4% gain reported for combined November and December sales. Comparable store sales increased 3%.

According to Mark Aaron, vice president of investor relations, “while price stratification for the Americas in the fourth quarter indicated continued declines in sales and transactions below $250, it was more than offset by sales growth in most of the higher-priced categories. It was a pretty similar dichotomy for the full year, with the greatest strength in sales over $20,000 and $50,000.”

The company said the slower sales growth in the Americas may have been due to “restrained spending by customers employed in the financial sector.” The softness in entry-price sterling silver jewelry “might be tired to some resistance to price increases among other factors.”

But foreign tourists were more than willing to spend. Foreign tourists as a percentage of total U.S. sales rose to 23% last year from 15% in 2009. Sales at its New York flagship store increased 2% driven mostly by foreign tourists. Combined Internet and catalog sales declined 4%, however.

Other regions in the Americas benefitted from foreign shoppers, too. Comp store sales in branch stores rose 3%, with growth somewhat skewed toward the western half of the region, which includes continued strong growth in Hawaii and Guam, driven by Japanese tourists. Canada and Latin America posted solid sales growth in the quarter, the company said.

In the Asia-Pacific region, fourth quarter sales rose 19% to $225 million, led by demand in Australia, Hong Kong and Macau. On a constant currency exchange basis, total sales rose 18% with comparable store sales up 13%.

Sales in Japan recovered after suffering in March 2011 following the major earthquake and tsunami. Fourth quarter sales there increased 12% to $204 million. Excluding currency translations, sales were up 5% with comparable store sales increasing 4%.

24 Stores to Open This Year

In Europe, sales were up 3% to $142 million with demand from Germany and Austria offsetting declines in the United Kingdom, where shoppers in financial markets cut back on spending, the company said.

Kowalski added that as Tiffany celebrates its the 175th anniversary, the company is better positioned than ever in terms of its increased physical presence and brand awareness around the world.

“Our expansion plans for 2012 include opening a net of 24 stores in important markets, delivering extraordinary product offerings with several new jewelry collections, increasing our marketing spending and providing superior shopping experiences,” Kowalski said.

Analysts eagerly greeting Tiffany’s positive outlook, causing its shares to be among the most active in trading earlier today.

“Solid results and healthy guidance should assure investors that Tiffany’s surprising holiday sales deceleration was not first shoe to drop in an ugly downturn for global luxury and premium brand companies,” said ISI Group analyst Omar Saad.

“Their guidance suggests that business has reaccelerated,” David Schick, an analyst with Stifel Nicolaus & Co., said. “When the financial markets, economic conditions and consumer sentiment improve, people go shopping.”


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