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NEW YORK — A tarnished performance in Japan didn’t prevent Tiffany & Co. from posting higher fourth-quarter sales and earnings, and its reliance on its core brand won’t stop it from introducing a new non-Tiffany retail concept in 2003.
The New York-based retailer said it is investing in a new retail jewelry concept, but did not elaborate on details.
“There will be incremental business development spending to support new retail jewelry concepts, one of which will be rolled out in 2003,” James Fernandez, Tiffany’s chief financial officer, said on a morning conference call. “The U.S. jewelry market is vast, competition is fragmented and we believe very strongly there are certain segments of the market that are underpenetrated, but cannot be served efficiently by the Tiffany & Co. brand. We intend to address that opportunity in the near future.”
For the three months ended Jan. 31, Tiffany said income increased 7.9 percent to $89.3 million, or 60 cents a diluted share, in line with its previously lowered forecast, versus income of $82.7 million, or 55 cents, in the same quarter last year. Earnings in the prior year included an impairment charge equaling 3 cents a share due to its investment in a third-party Internet retailer. Overall sales during the period rose 9.4 percent to $619 million over $565.8 million.
While U.S. comparable-store sales rose 2 percent in 2002, they slumped 8 percent in Japan on a constant exchange basis. Despite the gap, Tiffany predicated a mid-single-digit comp increase in both the U.S. and Japan, its two largest markets.
“We obviously encountered challenges in Japan, but we are in the process of addressing them and we maintain confidence in the Japanese market,” Michael J. Kowalski, chairman and chief executive, said on the call.
Tiffany warned on Jan. 7 that, because holiday sales fell below expectations, fourth-quarter earnings per share would land at 57 to 62 cents from its previous guidance of 60 to 65 cents for the quarter. Consensus estimates were for earnings of 61 cents a share for the quarter.
By segment, U.S. retail sales increased 3 percent to $298.3 million in the quarter with a fractional increase in comparable-store sales. Sales in the New York flagship rose 1 percent while comps in the branch stores were also up fractionally, reflecting increases in store traffic and transactions offset by declines in the brand conversion rate and lower average transaction size, primarily in the flagship.
International retail sales increased 8 percent to $231.1 million, but rose 3 percent on a constant exchange basis. By region, Japanese comps fell 10 percent, offsetting a 13 percent increase in other Asia-Pacific markets and a 9 percent European increase.
Specialty sales, which mostly consist of the consolidated sales of Little Switzerland it acquired in October, were $20.2 million.
For the full year, earnings rose 9.4 percent to $189.9 million, or $1.28 a diluted share, which included a one-time tax benefit of 5 cents a share for the recognition of the cumulative U.S. tax benefits, as well as the aforementioned charge. That compares with a 2001 income of $173.6 million, or $1.15.
Sales for the 12 months were boosted 6.2 percent to $1.71 billion over $1.61 billion. Excluding currency fluctuation, net sales rose 6 percent and comps worldwide dropped 1 percent. U.S. retail sales increased 4 percent to $819.8 million for the year, representing 48 percent of the company’s net sales, and increased 2 percent on a comp basis. International sales rose 4 percent to $683.5 million, 40 percent of total sales. Direct marketing sales rose 11 percent to $179.2 million, and were 11 percent of total sales.
While saying 2002 was challenging, Kowalski said, “Tiffany did increase net sales by $100 million and achieved net earnings and margins close to record levels set in 2000, and, in fact, reported diluted EPS at an all-time high.”
Paying lip service to the new business unit, Kowalski noted his primary objective is to develop “substantial organic growth opportunities of the Tiffany & Co. brand. However, we possess the management strength and expertise to also pursue increased business development opportunities.”
Basing its expectations on economists’ views of a second-half revival this year, Hernandez said plans for the year include EPS of $1.33 to $1.38 a diluted share, with growth in all quarters except the third, due to a nonrecurring cumulative tax benefit in the 2002 quarter. In addition, he said he expects midteen sales growth in 2003, with double-digit sales growth in all quarters. U.S. and Japanese comps should finish with mid-single-digit increases, with the lion’s share of them in the second half.