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Leibish & Co

Thursday, December 8, 2011

Harry Winston’s Growth Ends in Q3

Harry Winston salon in Paris

Harry Winston Diamond Corp., the luxury retail jeweler and supplier of rough diamonds, saw its retail sales slow to a crawl and its diamond business take a nosedive for the third quarter of fiscal 2012.

Sales in the Toronto-based company’s mining segment fell 40 percent, year-over-year, to $36.2 million for the quarter, ended October 31. Rough diamond production for the period increased 8 percent to 800,000 carats for the period. Harry Winston has a 40 percent ownership stake in the Diavik Diamond Mine in Canada’s Northwest Territories. Mining giant Rio Tinto owns the other 60 percent.

For the luxury brand segment, sales increased 4 percent, year-over-year, to $83.5 million compared to $80.2 million in the same quarter of the prior year. At constant exchange rates, sales decrease by 4 percent. Harry Winston is a premier diamond jeweler and luxury timepiece retailer with luxury salons in key locations around the world.

“Challenging trading conditions returned to the diamond business internationally in the third quarter,” said Robert Gannicott, Chairman and CEO. “However, this was not the sudden, hard shock of 2008/2009 and, being better equipped to weather a downturn than in 2008/9, we elected not to sell the full rough diamond production into a weak market during the quarter but continued to supply the segments where demand remained resilient. We have now resumed a wider range of rough diamond sales as the market has recovered some poise in the light of continuing good consumer demand. Our luxury brand segment has seen increased unit sales as we continue to broaden the focus of our jewelry and timepieces.”

Rough diamond price during the third quarter was $159 per carat from 200,000 carats sold compared to $95 per carat from 600,000 carats sold in the comparable quarter of the prior year, the company reported. The price difference is primarily the result of the stockpiling of some lower priced diamond assortments which currently face competition from the recent sale of stocks of similar quality Zimbabwe diamonds. At October 31, 2011, the company was holding 1.1 million carats of rough diamond inventory with an estimated value of $123 million at current market prices.

Mining segment EBITDA was $16.7 million in the quarter compared to $24.9 million in the comparable quarter of the prior year. After accounting for the $13 million ($8.4 million tax effected) non-cash de-recognition charge related to a backfill plant no longer needed in revised underground mining methods, this segment recorded an operating loss of $3.3 million. Excluding this charge, the mining segment would have recorded an operating profit of $9.7 million in the third quarter compared to $9.4 million in the same quarter of the prior year.

The luxury brand segment generated EBITDA of $4.5 million and an operating profit of $1.3 million in the third quarter 2012 compared to EBITDA of $8.6 million and operating profit of $5.4 million in the comparable quarter of the prior year. The decreased operating profit is a result of the seasonal increased marketing expenditure leading into the holiday season and expenses related to the anticipated opening of new salons in China during early 2012.

The Company had $83.2 million of cash and $106.2 million availability in its credit facilities as of October 31.