By  on March 27, 2007

Tiffany & Co.'s sales are now drumming to the beat of a global rhythm — and it has big growth plans ahead.

As the high-end specialty retailer posted fourth-quarter earnings that were essentially flat compared with year-ago results, the company clocked international sales that reached the $1 billion mark for the year despite continued weakness in Japan.

Tiffany wants to maintain that pace, with plans to accelerate its store expansion program in the U.S. to five to seven new stores annually from three to five a year, and the opening of 10 stores internationally in 2007, according to Mike Kowalski, chairman and chief executive officer, during a conference call with Wall Street analysts.

In a telephone interview, Mark Aaron, Tiffany's vice president for investor relations, said the retailer will open three stores in Japan, two in Tokyo and one in Hiroshima, this year. The company, which last month opened a store in Seoul, will open a unit in Singapore at the Changi airport in 2007. In Europe, a store is set to open later this year in Hamburg, Germany.

The retailer has 52 stores in Japan and four in Mainland China. In China, there are two stores in Beijing, one in the Palace Hotel and the other at Oriental Plaza, and two in Shanghai, one in City Plaza and the other in Plaza 66. Off the mainland, there is a store in Macau and six sites in Hong Kong.

Indicating Tiffany's growing interest in the Chinese market, which offers huge potential for luxury brands, the retailer has established an informational Web site in the country. "We wanted to build brand awareness, and the informational site will help us do that," Aaron said.

He said the company felt it was too early to have an e-commerce site for China, which will also mean setting up an infrastructure for order fulfillment services. The baby step in China is not unlike what Tiffany did a few years ago in setting up its informational site in Japan before expanding into e-commerce in 2005. Tiffany also operates e-commerce sites in the U.S., the United Kingdom and Canada.

"All international markets are growing at a robust rate, [although] Japan has softened....Japan is still very important to us, but those other regions also have become important so that we are more geographically diversified," Aaron said.For the three months ended Jan. 31, Tiffany said that earnings inched up 0.2 percent to $140.5 million, or $1.02 a diluted share, from $140.3 million, or 97 cents, in the same year-ago quarter. Net income for the period included an impairment charge connected with subsidiary Little Switzerland Inc. of 5 cents a diluted share. Sales rose 14.9 percent to $986.4 million from $858.4 million. U.S. retail sales climbed 13 percent in the quarter, while same-store sales gained 9 percent.

For the year, net income fell by 0.3 percent to $253.9 million, or $1.80 a diluted share, from $254.7 million, or $1.75, a year ago. Sales rose 10.6 percent to $2.65 billion from $2.40 billion.

"We achieved solid comp-store sales growth in the U.S. and most international markets. In fact, Tiffany's international retail channel reached a milestone with sales of $1 billion," said Kowalski during the conference call.

"Tiffany's product development program will deliver an array of new designs in 2007 to span a wide range of materials, price points and styles, and we have a significantly aggressive marketing plan to enhance products and brand awareness," the ceo said.

"Worldwide, we opened a substantial number of new stores which have generated excellent results while completing the multiyear renovations and expansions of our flagships in New York and in London. Our merchants delivered an exciting array of new products, spanning a wide range of designs and price points, and the introduction of Frank Gehry's new designs generated both enormous excitement and significant sales," the ceo said.

Executives on the call said sales in the quarter ranged across many categories and prices points from "silver jewelry under $500 to diamond jewelry over $50,000." Sales in the New York flagship on Fifth Avenue rose 17 percent, while comps in its seven stores in the New York market outside of Manhattan jumped 13 percent. Sales in Hawaii and Guam, however, lost ground due to lower sales from Japanese tourists.

Aaron said on the call that international retail sales rose 15 percent on a dollar basis during the quarter. While Japan has typically represented the largest portion, or 54 percent in 2005, of its international channel, the country now represents 49 percent of international sales due to Tiffany's growth of its store base in other overseas markets, such as Europe, Asia-Pacific, Canada and Latin America.In the U.S., the company opened a store in Austin, Tex., earlier this month and has on its agenda for 2007 four more stores: Wall Street; a second store in Las Vegas; Natick, Mass., outside of Boston, and Red Bank, N.J.

In direct marketing in the U.S., sales climbed 10 percent in the quarter, which was on top of a 15 percent gain last year. Sales growth came from increases in the number of Internet orders and in the average amount spent per transaction from Internet and catalogue orders. As a whole, catalogue sales have declined somewhat as mailings have decreased to 22 million catalogues in 2006 from the 26 million mailed out seven years ago.

"We expect catalogue mailings to decline in 2007, too, but feel it is still an important marketing vehicle and sales tool, serving as a dual function in communicating what Tiffany has to offer," Aaron said, noting the retailer last year also launched e-mail marketing as a cost-effective way of getting its message to customers.

In 2007, the retailer expects sales growth of 11 to 12 percent and an increase in earnings per diluted share by 15 percent.

Shares of Tiffany closed Monday at $45.63, up 0.3 percent, in trading Monday on the Big Board, with 3.2 million shares changing hands versus a three-month average trading volume of 1.5 million.

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