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Tiffany Earnings Flat in Q4

Jeweler managed to beat Wall Street’s fourth-quarter expectations and predicted better-than-expected earnings for the year.

NEW YORK — Tiffany & Co. hopes it has weathered the storm.

The retailer predicted a lackluster first quarter, coming off a “disappointing” fourth quarter, in which high silver costs and sluggish U.S. demand for entry-priced jewelry kept earnings flat. But the company said Friday that it sees strength in the second half of the year, boosted by rising sales in the Asia-Pacific region, coupled with growing demand for new, more affordable collections.

Tiffany, which managed to beat Wall Street’s fourth-quarter expectations, predicted better-than-expected earnings for the year, pushing its stock up 1.9 percent to $69.23 at the end of trading.

For the fourth quarter, ended Jan. 31, the company registered net income of $179.6 million, or $1.40 a diluted share, compared with year-ago income of $178.4 million, or $1.39. Net sales expanded 4.1 percent to $1.24 billion from $1.19 billion.

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Analysts expected EPS of $1.36 on sales of $1.25 billion. Quarterly gross margins fell to 59.1 percent of sales versus 60.4 percent a year earlier.

“We dealt with economic conditions in 2012 that were more challenging in some regions,” chairman and chief executive officer Michael Kowalski said on the company earnings call. “We saw pronounced softness in sales of entry-level-priced silver jewelry, and overall sales weakness led to a timing lag in realizing the benefit from moderation in commodity costs.”

The ceo predicted earnings in the first quarter will decline about 15 percent to 20 percent due to “continued but diminishing gross margin pressure and higher marketing-related costs.”

Flagging sales of silver jewelry priced under $500 will continue to contribute to a slip in margins, as it did in the fourth quarter, because silver carries a higher profit margin than fine jewelry.

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Although the dip in silver sales is linked partially to economic pressure on Tiffany’s entry-level price consumer, Kowalski also pointed to the company’s “ongoing brand strategy,” which is “primarily focused on product development and marketing on mid- to higher-priced categories.”

He added, “Absent those pressures in subsequent quarters, we expect net earnings growth in the second, third and fourth quarters.”

Much of that growth is likely to come from the Asia-Pacific market, where the company continued to open more stores this year in China, Singapore and Australia. According to Tiffany, sales in the region rose 13 percent to $254 million in the fourth quarter.

Sales in the Americas increased 2 percent to $620 million as the New York flagship store, which accounts for 8 percent of Tiffany’s overall business, saw sales slide 3 percent. In Europe, sales expanded 3 percent to $146 million, while in Japan, sales fell 6 percent to $192 million.

In order to fuel growth during the year, Tiffany is banking on higher-priced jewelry, which includes gemstone pieces and gold and silver collections. The brand is also banking on growth from new collections priced under $500, including jewelry made from Rubedo, a proprietary alloy composed of copper, gold and silver, and flashier collections timed to the release of the film “The Great Gatsby” this spring. The Baz Luhrmann-directed movie will feature diamond and platinum designs by Tiffany, which, in turn, has plans to release its own Jazz Age-themed styles to be sold in its stores.

With that in mind, the company projected annual earnings from operations of $3.43 to $3.53 a share, which is in line with Wall Street’s $3.50 EPS estimate.

“We’ve entered 2013 with considerable enthusiasm. We know that the Tiffany & Co. brand remains strong and is increasingly admired and desired by customers in existing markets and in new markets we enter around the world,” Kowalski said. “The universal desire among consumers for extraordinary product designs, craftsmanship, quality and shopping experience has not diminished and we believe in fact will grow stronger.”