By  on December 1, 2005

NEW YORK — Tiffany & Co. reported a 37 percent jump in third-quarter net profits, because of higher gross margins and a jump in consolidated same-store sales. The company, however, had a weaker-than-expected gain in net sales, partially due to ongoing — though improved — weakness in Japan.

The company also said it would be rolling out jewelry in some of its stores that are to be designed by architect Frank Gehry.

In the three months ended Oct. 31, New York-based Tiffany earned $23.8 million, or 16 cents a diluted share, matching analysts' estimates. The specialty jewelry retailer earned $17.4 million, or 12 cents, in the prior-year period. Net sales rose 8.4 percent to $500.1 million from $461.2 million a year ago. The sales total, however, missed analysts' estimates by $4 million.

Shares of Tiffany ended Wednesday trading off 3.4 percent to $40.70 on the New York Stock Exchange.

Tiffany said worldwide same-store sales were up 5 percent during the third quarter on both a reported and constant-exchange rate basis, while same-store sales in its U.S. retail stores were up 7 percent. Comps in both Japan and Europe, however, fell 2 percent on a reported basis.

By division, retail net sales in U.S. stores rose 9 percent to $247.8 million, while international sales rose 7 percent to $204.3 million. Direct marketing sales were up 4 percent at $27.3 million, and sales in the "other" segment rose 22 percent to $20.7 million, driven largely by wholesale sales of diamonds.

"We saw strength during the quarter across a range of jewelry categories with especially strong results at higher price points," said Mark Aaron, vice president of investor relations, in a subsequent conference call with analysts. "We continue to achieve healthy growth in the engagement jewelry category, especially in the U.S., but we also experienced meaningful increase in Japan."

Gross margins as a percent of sales expanded to 54.1 percent in the quarter, versus 53.2 percent last year. Tiffany cited changes in the geographic/product sales mix and product costs as well as wholesale sales of diamonds, which the company said earn minimal or no gross margin.

In the nine months, the company's earnings rose 31.1 percent to $114.4 million, or 79 cents, versus $87.3 million, or 59 cents, a year ago. Total sales were up 10.2 percent at $1.5 billion.Aaron said during the call that Gehry will introduce jewelry designs in some Tiffany stores in the U.S. and Japan in the spring with a rollout to all stores next fall. Gehry's designs are "contemporary, bold and innovative, and will add another dimension to Tiffany's offerings," Aaron said.

Tiffany maintained its previously announced full-year sales and earnings expectations of an 8 to 10 percent sales gain and net earnings of $1.55 to $1.65 a diluted share. Analysts are expecting a profit of $1.64 on sales of $2.42 billion.

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