NEW YORK — Tiffany & Co. lost some of its gleam during the second quarter.
Hurt by sales shortfalls in its New York flagship, as well as difficult conditions worldwide, profits for the three months ended July 31 fell 9.3 percent to $32.7 million, or 22 cents a diluted share, at the low end of its July guidance of 22 to 24 cents. In last year’s quarter, the firm earned $36.1 million, or 24 cents. Sales inched up 0.8 percent to $374.4 million from $371.3 million, but on a constant exchange rate basis, worldwide sales were flat with comparable-store sales down 5 percent.
Still, the New York-based luxury jewelry and accessories retailer said it expects conditions in both the U.S. and Japan, its two largest markets, to improve in the second half and reiterated its earnings per share guidance for the third and fourth quarters.
Tiffany shares rose $1.63, or 7.6 percent, to close at $23.19 in New York Stock Exchange trading Tuesday.
Tiffany also announced plans to acquire an additional 12 percent of Little Switzerland Inc.’s outstanding shares of common stock at $2.40 a share. Since April 2001, Tiffany has owned 45 percent of LS, which is based in St. Thomas, U.S. Virgin Islands, and is a specialty retailer of luxury items. If the tender offer is successful, Tiffany would operate it as a separate business unit under its current trade name. It also said it expects to commence its tender offer on or soon after Aug. 15
"These sales results reflect challenging external conditions in the U.S. and in many international markets," Michael J. Kowalski, president and chief executive, said in a statement. "However, we are pleased to be maintaining strong levels of profitability, due to increased gross margins and expense control efforts."
By division, Tiffany’s U.S. retail sales rose 1 percent to $187.2 million, but fell 2 percent on a comp basis, with the flagship down 6 percent and branch stores flat, due to a drop in the average transaction size and sales to foreign tourists, especially in New York and Hawaii. Store traffic was down slightly on a comp basis overall, while traffic in the New York flagship dropped 20 percent.On the international front, challenging economic conditions were blamed for the 1 percent shortfall in sales to $148.5 million, a 3 percent drop on a constant exchange basis. In the quarter, comps declined 13 percent in Japan, below its original plan of a slight comp increase, while comps in other Asia-Pacific markets rose less than 1 percent. Europe, up 17 percent in last year’s second quarter, was down 10 percent.
Sales in its direct marketing channel rose 12 percent to $38.7 million. Combined Internet and catalog sales rose 27 percent, with Internet sales alone rising more than 60 percent and catalog sales just below those of last year. Business sales fell 5 percent, below expectations, but better than in the past several quarters.
Saying Tiffany was no exception to financial bumps in the road, James Fernandez, Tiffany’s chief financial offer, said on a conference call, "You can be assured we intend to overcome any obstacles and enjoy Tiffany’s substantial earnings power when the economic conditions become more favorable."
He noted Tiffany’s longer-term success has been based on a "disciplined and controlled approach to pursuing a set of core growth strategies and initiatives in store expansion, merchandising, marketing and customer services."
For the second half, Hernandez said he is forecasting a mid-teen comp increase in the U.S. in the third quarter, due to easy comparisons, and a low double-digit comp increase in the fourth quarter, due to an expected economic improvement and revived consumer spending.
"It’s pretty clear most companies in the jewelry and luxury goods sectors — whether of European or U.S. origin — are experiencing varying degrees of sales weakness," said Mark Aaron, vice president of investor relations. "However, we are not in the fashion business and are not subject to such related risks. Instead, we believe in these times, perhaps more than ever, consumers turn to trusted retailers with quality offerings which represent enduring value. Tiffany is about things that last."
For the first half, income declined 2.1 percent to $65.4 million, or 44 cents a diluted share, from $66.8 million, or 44 cents, in the comparable period last year. Sales of $721.6 million were 2 percent higher than last year’s $707.7 million. On a constant exchange rate basis, sale rose 3 percent, but declined 2 percent on a comp basis.
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