While much of the jewelry and luxury industries are struggling to come to grips with the unsettled economic environment, Tiffany & Co. continues to experience significance growth.
The luxury jewelry retailer said Friday that its worldwide net sales rose 9 percent to $668.8 million in the second quarter, year-over-year, with solid growth in most regions. On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales rose 8 percent and same store sales (a strong indication of growth or weakness among stores) rose 5 percent.
Net earnings from continuing operations rose 19 percent to $67.7 million for the period ended July 31, which the company said is due to higher operating margins. Net earnings from continuing operations adjusted to exclude nonrecurring items rose 45 percent. As a result, the company modestly increased its full year earnings growth outlook.
“Tiffany's financial performance in the quarter continued to demonstrate the benefits derived from a growing global presence, with roughly half of our sales now occurring outside the U.S.,” Michael J. Kowalski, Tiffany chairman and CEO, said in a statement. “In the quarter, we were pleased that sales increased in most countries and product categories.”
Despite the overall growth in sales, Mark Aaron, Tiffany vice president-Investor Relations, said in a conference call Friday that sales were hurt due to “softer than expected” growth of 8 percent to 350.4 million in the Americas, which consists of the U.S., Canada and Latin/South America. However, Aaron described sales growth in Asia-Pacific region as “generally solid” and offset the weaker growth areas, which also includes Japan, which he said was “probably not surprising.”
In the Americas, sales increased 8 percent to $350.4 million in the second quarter, “which was lighter than we expected, especially due to softness earlier in the quarter,” Aaron said. “The 8 percent increase entirely resulted from an increase in the average transaction size.” He added that the company reported “healthy growth” in most transactions price points, particularly at the highest end. However, transactions under $500 declined.
On a constant-exchange-rate basis, sales rose 7 percent and same store sales increased 5 percent for the quarter. Sales in the New York flagship store rose 8 percent (due primarily to increased tourism) while Americas' branch store sales increased 4 percent. Internet and catalog sales in the Americas fell 2 percent for the period. Aaron noted, “continued and pronounced softness” in the company’s Southwest U.S. region, which includes of Southern California, Arizona and Las Vegas.
Sales in the company’s Asia-Pacific region (excluding Japan) recorded a 21 percent increase in sales to $111.5 million. On a constant-exchange-rate basis, sales rose 17 percent for the period, with the largest percentage growth in China, Hong Kong, Macau and Korea. Same-store rose 7 percent. During the quarter, the company opened a store in the new Marina Bay Sands Resort in Singapore (its fourth in Singapore) and a store in the IFC Mall in Shanghai (its 12th in China).
In Japan, sales rose 4 percent to $118 million in the second quarter. On a constant-exchange-rate basis, sales declined 2 percent and same store sales fell 7 percent.
Europe was another strong performer for Tiffany, as sales increased 14 percent to $76.9 million in the second quarter. On a constant-exchange-rate basis, sales rose 25 percent, with similarly strong growth in the U.K. and continental Europe. Same store sales rose 21 percent for the period.
Other sales declined 19 percent to $11.9 million in the second quarter primarily due to lower wholesale sales of rough diamonds, the company said.
“Worldwide sales grew in all major categories in the second quarter,” Aaron said. “Sales of engagement rings grew strongly in the Americas, the Asia-Pacific and Europe largely due to solid growth in units as well as higher average price. There was modest growth in statement jewelry sales over $50,000 and a continued strong performance in celebration rings and other popular jewelry collections, such as Victoria, Metro and Heart. The Keys collection remains strong at higher price points. There was a healthy demand for gold and platinum jewelry in contrast to silver jewelry sales, which were virtually equal to the prior year. The designer jewelry category had a good increase. And we pleased to see watch sales up more than 30 percent in the quarte,r reflecting strong interest in our new Tiffany brand design.
In addition, the company plans to release new products including a collection of yellow diamonds that were first launched in Japan and Australia and which will be available in all areas. Next week, the company plans to launch a much talked about collection of leather handbags and accessories in select U.S. stores and online.
In its 2010 outlook, Tiffany said it expects a worldwide sales increase of approximately 11 percent. By region, sales are expected to increase approximately 10 percent in the Americas, mid-twenties percentage in Asia-Pacific, to decline by a low-single-digit percentage in Japan and to increase by a mid-teens percentage in Europe. Other sales are expected to increase modestly from the prior year.
The company plans to open of 14 new stores in 2010 (five in the Americas, seven in Asia-Pacific and two in Europe).
“We look toward the second half of the year with a sense of guarded optimism, continuing to grow our worldwide store base and launching a range of exciting new products, including an extraordinary collection of jewelry with yellow diamonds and an enticing new collection of handbags and leather accessories, among many others,” Kowalski said. “So far in this third quarter, consolidated worldwide sales are growing at a low-double-digit percentage rate over last year, with varying results by region.”
The company increased its annual net earnings outlook to $2.60 - $2.65 per diluted share (from $2.55 - $2.60 previously.
Tiffany & Co. operates 223 TIFFANY & CO. stores and boutiques (91 in the Americas, 57 in Japan, 48 in Asia-Pacific and 27 in Europe), versus 211 locations a year ago (88 in the Americas, 57 in Japan, 42 in Asia-Pacific and 24 in Europe).