Thursday, fine jewelry retailer Tiffany & Co. (TIF) reported a surge in its second-quarter profit, driven by strong sales in its Asia-Pacific and European regions combined with higher operating margin. Poised by the quarterly performance, the New York-based company lifted its full-year earnings outlook.
For the second quarter, net earnings were $80.77 million, or $0.63 per share, compared with $40.46 million, or $0.29 per share, last year. Net earnings per share benefited from fewer shares outstanding due to the company's share buyback program.
Net earnings from continuing operations rose 21% to $80.77 million from $66.71 million in the prior-year quarter. On a per share basis, earnings were up 31% to $0.63 from $0.48 in the prior year.
On average, 11 analysts polled by First Call/Thomson Financial expected earnings of $0.55 per share for the quarter.
In the second quarter of 2007, the company recorded an after-tax charge of $23.6 million related to the sale of its Little Switzerland business, as well as losses from those operations.
Tiffany's quarterly net sales were $732.40 million, up 11% from $662.56 million in the prior-year quarter. Eight Wall Street analysts had a consensus sales estimate of $720.62 million for the quarter.
On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales rose 7% and comparable store sales declined 1%.
Geographically, sales in the Americas rose 3% to $422.4 million largely due to incremental sales from new stores. U.S. comparable store sales were down 4%. Sales in the New York flagship store rose 5%, reflecting increased spending by non-U.S. visitors, while comparable branch store sales declined 6%. Further, combined Internet and catalog sales in the U.S. were down 4% in the second quarter. The company also said it achieved strong sales growth in Canada and Latin America.
Sales in the Asia-Pacific region were $214.2 million, up 17% from last year. On a constant-exchange-rate basis, sales increased 7% and comparable stores sales rose 1%. According to the company, strong growth in most countries was partly offset by results in Japan.
European sales also increased 35% in the quarter to $71 million. On a constant-exchange-rate basis, sales rose 29%, driven by 11% comparable store sales growth and sales from new stores.
The company's other sales reached $24.7 million, a 37% rise from the prior-year quarter, largely due to higher wholesale sales of diamonds in connection with the company's diamond sourcing program.
Second-quarter gross margin rose to 57.8% from 56.1% a year ago, reflecting favorable changes in geographic and product sales mix, and sales leverage on fixed costs.
Commenting on the results, Tiffany's chairman and chief executive officer Michael Kowalski said, "Tiffany's global retail operations once again demonstrated the ability to generate strong operating earnings growth despite weakness in certain individual country markets. Our continued expansion throughout Asia and Europe should contribute to increasingly consistent and resilient long-term earnings growth."
Selling, general and administrative expenses rose 13% in the quarter, due to incremental costs related to new stores, higher marketing expenses, and some translation effect from foreign currencies.
For six months ended July 31, the company earned $145.16 million, or $1.13 per share, up from $94.54 million, or $0.67 per share, a year ago. Net sales rose to $1.40 billion from $1.26 billion in the prior-year period.
Going forward, Tiffany expects full-year net earnings per share in the range of $2.82 - $2.92, compared with its previous forecast range of $2.80 - $2.90. Meanwhile, analysts expect earnings of $2.83 per share for the fiscal year ending in January 2009.
The company also forecasts that its full-year operating margin will increase slightly over the prior year.
Tiffany said that its full-year expectation includes worldwide sales growth of about 9%, based on continued strong growth in Europe and Asia-Pacific other than Japan and a return to U.S. comparable store sales growth in the fourth quarter due to an easier year-over-year comparison.
TIF is trading at $43.84, up $4.24, on a volume of 2.25 million shares.
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