Tiffany Bullish on 2012 Despite Q4 Dip

Flagging sales in the U.S. and Europe gave the jeweler its first decline in quarterly net income since the third quarter of 2009.

Flagging sales in the U.S. and Europe, due in part to increasing expenses and a pullback in spending during holiday, gave Tiffany & Co. its first decline in quarterly net income since the third quarter of 2009.

This story first appeared in the March 21, 2012 issue of WWD.  Subscribe Today.

Despite reporting a 1.6 percent dip in fourth-quarter income Tuesday, Tiffany remained bullish, forecasting stronger-than-expected profits and sales in 2012, as it fetes its 175th anniversary next year and continues its global expansion push. Even though Tiffany’s uncharacteristically modest results contrast with the broader strength in the luxury market, Wall Street was not dissuaded, as the jeweler’s stock jumped 6.7 percent to $73.27 at the end of trading. This could be attributed to the fact that the slip in net income was largely expected.

In January, the New York-based retailer lowered its annual guidance to between $3.60 and $3.65 a share, not including a 20-cent expense, citing “markedly weaker” holiday sales in the U.S. and Europe.

“We generated strong sales and earnings growth for the year despite the softness in the fourth quarter and we continue to build an even stronger platform for future growth,” chairman and chief executive officer Michael Kowalski said on the earnings call Tuesday. “Our plan for 2012 is to open a net of 24 stores representing a 10 percent increase in the number of locations.”

The brand said it would open nine stores in the Americas, seven in the Asia-Pacific region, three in Europe and five in the United Arab Emirates. While expansion will help extend the brand’s reach, the jeweler will still have to contend with economic volatility.

Mark Aaron, Tiffany vice president of investor relations, told WWD that while the company experienced a hiccup in spending among high-end consumers in key regions of the U.S. and Europe in the quarter, it’s “not a long-term phenomenon,” as business has since met internal expectations. Aaron declined to disclose those financials.

“We believe that the slower sales growth in the Americas in the fourth quarter might have been in varying degrees due to restrained spending by customers employed in the financial sector, which especially affected our sales in the Northeast and mid-Atlantic regions of the U.S., substantial competitive discounting and particular softness at our entry-level silver jewelry price point that might be tied to some resistance to price increases, among other factors,” Aaron said. “We think that softness in London has probably reflected restrained spending by customers in the financial industry similar to what we’ve experienced in New York along with overall challenging economic conditions.”

This translated to a 1.6 percent dip in profits to $178.4 million, or $1.39 a diluted share for the quarter ended Jan. 31, compared with year-ago income of $181.2 million, or $1.41 a share. Wall Street expected earnings per share of $1.42.

Quarterly revenues, however, met expectations, and totaled $1.19 billion versus sales of $1.10 billion a year earlier. The brand said that while sales of engagement jewelry continued to increase, high-end statement jewelry sales “softened after experiencing strong growth in the first three quarters of 2011.” Sales of fine and fashion jewelry expanded “modestly” over the three quarters.

On a constant-exchange-rate basis, total comparable-store sales rose 5 percent for the quarter versus a 13 percent comp increase the prior year. With the exception of Japan, which matched its year-ago 4 percent comp rise, every region posted weaker same-store sales numbers. In Asia-Pacific, comps jumped 13 percent versus 27 percent the prior year, while in Europe, comps fell 2 percent versus a 6 percent rise.

Comps in the Americas edged up 3 percent, but failed to outpace last year’s 13 percent increase. Nonetheless, strong tourist dollars expanded comp sales at the New York flagship 20 percent, Tiffany said.

Selling, general and administrative costs grew 9.8 percent to $431.2 million.

For the year, the jeweler’s net income rose 19.2 percent to $439.2 million, or $3.40 a diluted share, and its sales expanded 18.1 percent to $3.64 billion.

In 2012, the retailer anticipates a profit of between $3.95 and $4.05 a diluted share, higher than analysts’ estimates of $3.64 a share. Tiffany will report first-quarter results on May 24.