A 75.6 percent drop in fourth-quarter earnings and tepid sales outlook notwithstanding, Tiffany & Co. intends to stay on the sidelines of the current promotional furor running through the jewelry market.
“While we believe our sales were negatively affected by the rampant discounting of some other jewelers and high-end competitors, we did and will continue with our full-price philosophy in order to maintain appropriate margins and, very importantly, to maintain the integrity of the Tiffany & Co. brand,” said executive vice president and chief financial officer James Fernandez on the company earnings call Monday morning.
Pressured by the economic slowdown, Tiffany said it has focused and continues to focus on reducing costs and launching products to navigate the turbulent economic waters.
Cost cuts directly impacted Tiffany’s bottom line during the fourth quarter, when about 600 of 800 eligible employees in the U.S. accepted an early retirement package and the company opted to shutter its 16-store Iridesse pearl jewelry chain. The moves will reduce worldwide staff by about 10 percent and lead to pretax savings of about $60 million this year, but they also generated charges that subtracted 60 cents a share from earnings.
As a result, net income for the period ended Jan. 31 was $31.1 million, or 25 cents a diluted share, versus $127.4 million, or 96 cents a share, a year earlier. Excluding charges, earnings totaled 85 cents, 5 cents higher than the analyst consensus estimate listed by Yahoo Finance.
The better-than-expected result helped to catapult Tiffany’s share $3.14, or 15.5 percent, to $23.37 as the major indices shot up on word of the new Treasury Department plan for buying up toxic assets. (For more on the stock market, see page 14.)
Sales tumbled 20.1 percent to $841.2 million from $1.05 billion, in the year-ago quarter.
“Right now, the overall retail jewelry industry is under enormous stress. The industry is competitively fragmented,” said chairman and chief executive officer Michael Kowalski on Monday’s call. “We faced an unprecedented environment with profound challenges, but also with promising opportunities for Tiffany.”
The New York-based firm described the holiday season as the “most challenging in the 21 years since Tiffany became a public company.” Furthermore, the jeweler said it didn’t see any “signs of an upturn” in its business.
“Luxury brands — the full-priced brands — take it the worst in this economy, and that isn’t going to change,” said Pali Capital retail analyst Stacey Widlitz, who added that once a better retailer begins running big promotions, it is branded a discount player.
Widlitz, who rates Tiffany’s stock a “buy,” said the company has enough capital to maintain its position during the recession, and even stands to gain market share, despite flagging sales.
By region, the Americas took the biggest hit, with quarterly sales down 29 percent, to $458.9 million. Same-store sales in the U.S. declined 33 percent and were off 34 percent at the New York flagship store. Internet and catalogue sales in the U.S. slid 20 percent.
European sales for the quarter shrank 2 percent to $95.3 million. Excluding the effects of currency fluctuation, sales grew 20 percent, largely reflecting incremental sales from new stores, while comparable-store sales were flat.
In the Asia-Pacific region, sales contracted 3 percent to $279.7 million, due to declines in several markets. Excluding currency effects, sales declined 9 percent, and comps fell 13 percent.
For the year, Tiffany’s profit declined 32 percent to $220 million, or $1.74 a share, from $323.5 million, or $2.34 a share, a year ago. Revenues slipped 2.7 percent to $2.86 billion from $2.94 billion.
Although Tiffany said it would manage its business “prudently and proactively” in order to maintain its competitive position, the company will look to build market share by expanding its store count. However, the firm said it had slashed plans for new stores this year to 13 from the 22 opened in 2008. Five stores are planned to open in the Americas, including three in the U.S. and one each in Canada and Mexico. Tiffany said it would also open seven stores in Asia-Pacific, the majority in China, and one store in Europe.
In fiscal 2009, Tiffany expects earnings from continuing operations of between $1.50 and $1.60 a share, in line with analysts’ estimates of between $1.49 and $1.89 a share. The company forecasted worldwide sales to decline about 11 percent, with regional sales down in the midteens in the Americas, the midsingle digits in Asia-Pacific and the high-single digits in Europe.