By  on September 14, 2009

Harry Winston Diamond Corp. and its retail unit swung to second-quarter losses, as the company was dragged down by unfavorable currency fluctuation and plummeting demand that cut corporate sales nearly in half.

Chairman and chief executive officer Robert Gannicott said sales were affected by softness in retail, as well as weak prices and volume in its rough diamond business.

However, he said during the quarter, he saw rough diamond prices “increase substantially” as retail sales “edged up month to month…suggesting a shift in momentum.”

In the three months ended July 31, the Toronto-based firm’s retail unit registered an operating loss of$5.6 million versus an operating profit of $5.9 million a year earlier. Sales fell 39.8 percent to $48.8 million, from $81.1 million last year. In the U.S., revenue decreased 48 percent to $15 million, while European sales fell 44 percent to $17.7 million and in Asia, sales receded 21 percent to $16.1 million.

The company pegged the decline in sales on the embattled luxury market, adding its lower-priced items were holding up slightly better.

“The upper end of the market is slow and certainly this is what is dragging down the retail part of the business,” said president Thomas O’Neill. “When that will turn around I think has much to do with the macroeconomic situation.”

Overall, the company reported a net loss of $24.5 million, or 32 cents a diluted share, versus net income of $49.9 million, or 81 cents a share, in the year-ago period. Revenue contracted 49.1 percent to $94.8 million, from $186.1 million in 2008.

Gross margin as a percentage of sales slid to 30.1 percent versus 60.5 percent for the prior-year quarter. The company said it recorded a foreign currency exchange loss of $25.3 million, compared with a $5.3 million gain in 2008. Selling, general and administrative expenses were cut 17.4 percent, or $6.8 million.

For the first half, Harry Winston had a $69.6 million loss, or 97 cents a diluted share, versus profit of $71.2 million, or $1.17 a share, a year earlier. Revenue fell 40.3 percent to $204.4 million, from $342.2 million. In retail, the firm swung to a $10.6 million operating loss, versus an operating profit of $3.5 million. Net sales for the period declined 35.3 percent to $100.8 million, from $155.8 million.

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