NEW YORK — Buoyed by robust international sales and higher gross margins, Tiffany & Co. posted an 8 percent profit gain on sales that rose 6 percent during the first quarter.
Although gross margins were higher year-over-year, the company warned that rising precious metal prices could cut into margins for the fiscal year.
For the quarter ended April 30, the retailer’s net income climbed to $43.1 million, or 30 cents a diluted share, from $40.1 million, or 27 cents, in the prior year on sales that jumped to $539.2 million from $509.9 million. Operating profits increased 12 percent to $74.2 million from $66.3 million. Earnings per share results exceeded analysts’ consensus estimate by 2 cents, according to Thomson Financial.
The New York firm said international retail sales showed a gain of 13 percent in the quarter, while Japan gained 4 percent and others in the Asia-Pacific region climbed 19 percent. Europe was up 18 percent, while the U.S. showed a 2 percent gain. At constant exchange rates, international retail sales jumped 21 percent, Japan gained 15 percent, others in the Asia-Pacific region increased 20 percent, while Europe gained 27 percent.
Michael J. Kowalski, chairman and chief executive officer of Tiffany, said in a statement that he was “very pleased with the geographically broad-based strength in our international stores and [we] are encouraged with Tiffany’s results in Japan. U.S. retail sales results were disappointing, but it should be viewed [as] relative to a strong 14 percent increase in last year’s first quarter.”
For the quarter, the gross margin rate jumped to 55.8 percent, compared with 53.9 percent in the prior year. “The increased margin primarily reflected favorable product sales mix, as well as some benefit from geographical sales mix. Sharply higher precious metal and diamond costs continue to pressure gross margin, although the company periodically adjusts retail prices to mitigate such effects,” the company said in a statement.
On a conference call with analysts, Mark L. Aaron, vice president of investor relations, said softer same-store sales in the U.S. were “generally spread around the U.S. and the handful of stores that did post solid growth were not concentrated in any one region. In addition, sales to foreign tourists declined from last year. Lower sales to European travelers accounted for the majority of the sales decline in the New York flagship store and lower sales to Japanese travelers resulted in a sales decline in Hawaii.”
In Japan, comps rose 12 percent, which exceeded the company’s expectations. Aaron said the company is making progress in the country “through a multidimensional focus on sales training initiatives and on upgrading the physical presence of our retail locations.”
The strong sales were also “due to an increase in jewelry units sold as well as an increase in the average price mix. Sales growth occurred across a broad range of product categories, including engagement jewelry, fashion silver and gold jewelry, higher-end fine jewelry, name designer jewelry and watches.”
Kowalski said the company is “expanding our presence this year with five new U.S. stores and new locations in Japan [two], China [three], Austria, Mexico and Canada. We are also maintaining an active pace of new product introductions, highlighted by the recent launch of jewelry designed by the renowned architect Frank Gehry.”
For the year, management sees sales growing 10 percent. “Our forecast assumes gradually improving trends in the U.S. and solid international sales growth so that we achieve mid-single-digit comparable-store sales growth in the U.S. and Japan for the full year.”
The ceo said the company expects 12 percent pretax earnings growth for the year, and EPS of between $1.77 and $1.82.