Mar 21, 2011
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Tiffany outlook keeps luster despite Japan quake

Mar 21, 2011

Mar 21 - Tiffany & Co expects sales growth in markets like China and Australia this year to help make up for the earthquake and tsunami that are hurting results in Japan, its second-largest market.

The luxury jeweler forecast higher fiscal-year sales than analysts expected, sending its shares up more than 6 percent.

Tiffany & Co.
Tiffany's ring collection

Tiffany estimated on Monday that global sales would rise 12 percent to 14 percent this year on gains of more than 20 percent in Europe and Asia outside of Japan, markets that have led the company's torrid growth in recent years.

Tiffany said sales in Japan would slip 15 percent this quarter after it had to temporarily close stores in the Kanto and Tohoku regions, which account for more than half of its total in that country. But this was a smaller hit than Wall Street was expecting.

"It could have been much worse," said Morningstar analyst Paul Swinand. Growth in emerging markets such as China and Brazil should make up for the problems in Japan, he said.

Tiffany expects worldwide sales growth of 11 percent for the current quarter.

The company's sales in Japan have been gently sliding downward for years, but still make up about 18 percent of the total. Tiffany operates about 55 stores in Japan, almost one quarter of its overall number.

Most of the stores Tiffany had closed in Japan after the earthquake reopened over the weekend.

The company said business lost because of the earthquake would hit earnings per share by 5 cents this quarter, prompting the company to forecast a profit of 57 cents from continuing operations. But even that was above the 55 cents Wall Street was expecting, according to Thomson Reuters I/B/E/S.

For the full fiscal year, Tiffany expects to earn $3.35 to $3.45 per share, also ahead of estimates.

Gross margin rose 2.2 percentage points to 60.9 percent during the fourth quarter ended on January 31, when Tiffany typically gets one-third of its annual sales. The company was able to raise prices, offsetting higher gold, diamond and platinum costs.

Chief Executive Officer Michael Kowalski said on a call that Tiffany's "pricing power and strong competitive position" would enable the company to raise prices even more if need be.

Tiffany shares were up 6.1 percent at $60.78 in morning trading.

Shares of Tiffany and other luxury companies with a large presence in Japan, such as LVMH, Burberry Group and Coach Inc, fell after the earthquake on concerns about the impact on sales.


Even if Tiffany only hits the low end of its forecast, it would have full-year sales of $3.46 billion, beating Wall Street's expectations of $3.37 billion.

But even before the earthquake, Japan was not expected to play a large part in that growth.

Combined sales from other Asian markets are now equal to those from Japan, with greater China making up half of that.

China should provide more than half of the luxury sector's total gains over the next 10 years, Deutsche Bank said in a research note last week.

During the fourth quarter, Tiffany opened four new stores in China, including two in Shanghai, but permanently closed two in Japan.

The company is also banking on growth in markets as diverse as Brazil, Australia and Canada, and said it was planning to enter India.

Globally, sales rose 14 percent over the holiday quarter. They increased in every region, even in Japan, where they had fallen in the first three quarters of last fiscal year.

Sales benefited from a continued recovery in luxury spending in Tiffany's home U.S. market.

At Tiffany's flagship store on Manhattan's Fifth Avenue, which accounts for about 8 percent of company revenue, sales were up 2 percent, led by local shoppers rather than the tourists who had driven up demand in earlier quarters.

Net income from continuing operations rose 31.1 percent to $181.2 million, or $1.41 per share, from $138.2 million, or $1.09 per share, a year earlier.

Excluding one-time items, Tiffany reported earnings of $1.44 per share, beating Wall Street's average estimate of $1.39, according to Thomson Reuters I/B/E/S.

(Reporting by Phil Wahba, editing by Maureen Bavdek and Lisa Von Ahn)

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