By  on September 1, 2005

NEW YORK — Driven by "exceptionally strong" sales of high-ticket items, Tiffany & Co. reported a 52.8 jump in second-quarter earnings on a double-digit sales gain. The luxury specialty retailer also raised its earnings guidance for 2005.

As a result, shares of the company soared 12.3 percent to close at $37.42.

For the three months ended July 31, income skyrocketed to $50.6 million, or 35 cents a diluted share, from $33.1 million, or 22 cents, in the same year-ago quarter. Sales rose 10.5 percent to $526.7 million from $476.6 million. The firm said same-store sales increased by 6 percent in the U.S., which comprises a 6 percent growth rate in branch store sales and a 3 percent increase in its New York flagship sales. U.S. retail sales were up 8 percent to $267.7 million. In Japan, same-store sales rose by 1 percent in local currency.

For the six months, net income rose 29.6 percent to $90.6 million, or 62 cents a diluted share, from $69.9 million, or 47 cents, a year ago. Sales gained 11 percent to $1.04 billion from $933.6 million.

During the second quarter, the company began reporting its U.S. business gift sales within its U.S. retail channel instead of its direct marketing channel. The direct marketing channel in the quarter gained 5 percent to $30.4 million, due mostly to increases in the amounts spent for e-commerce and catalogue orders. International retail sales in the second quarter rose 12 percent to $202.1 million.

Michael Kowalski, chairman and chief executive officer, said in a statement, "These quarterly results are encouraging and we believe well position Tiffany for a successful second half."

Kowalski said the company upped its expectation for full-year 2005 earnings per share to a range of $1.55 to $1.65 a diluted share from previous guidance of $1.45 to $1.55.

Mark Aaron, vice president of investor relations, said during a conference call to Wall Street, "U.S. retail sales rose 8 percent in the quarter, primarily due to an increase in the average transaction size. Essentially, higher jewelry unit volume was virtually offset by a volume decline in accessories and tableware."

Aaron said while store traffic was somewhat lower than the prior year, the conversion rate was higher. "Our customer analysis indicated similar growth in sales to local customers and tourists, although the growth in our New York flagship sales came from higher foreign and domestic tourist spending," he said.Among the branch stores that posted large percentage increases were those in Washington, D.C.; Charlotte, N.C.; Coral Gables and Orlando, Fla.; Beverly Hills and Palm Desert, Calif., and Scottsdale, Ariz.

In terms of U.S. merchandising, Aaron said the company saw strength in most jewelry categories and at most price points. "Jewelry growth was driven by an increase in unit volume as well as a higher average price. In addition, from a price stratification perspective, we saw solid growth in virtually every price strata with exceptionally strong growth in sales from $3,000 to $10,000, and in sales over $50,000," he said.

He said the results reflect improvement in Japan. Aaron said the company is pursuing a number of initiatives to strengthen its business there, including accelerated product development and targeted marketing as well as public relations support.

Product-wise, sales in some ways paralleled trends in the U.S., Aaron said. Fine jewelry sales were up due to the success of collections such as Tiffany Jazz Voile and Rose. Also doing well were sales of new diamond and platinum items. Sales in the fashion gold category accelerated in the quarter, while total silver jewelry sales in Japan declined slightly in the period.

Tiffany also has another sales category — which rose 43 percent — that it calls "other," one where wholesale sales of rough diamonds represented the majority of the increase. Included too are sales from Little Switzerland stores, which rose 6 percent in the quarter.

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