Monday, March 23, 2009

Tiffany Stock Surges Despite 4Q Loss

Photo: Reuters/Fred Prouser

Tiffany & Co. shares rose 15.52%, or $3.14, to close at $23.37 after the company reported fourth-quarter profit that beat Wall St. estimates. This was the company's biggest gain in five months.

Excluding one-time charges, such as staffing reductions, earnings per share (EPS) was $0.85, beating average analysts' estimates of 78 cents per share according to Reuters Estimates.

Taking aggressive steps to lower costs was a contributing factor to the company beating expectations. Tiffany announced that it will close all 16 Iridesse pearl jewelry stores, which have operated at a loss since opening in 2004. They have offered early-retirement packages to 800 U.S. of its employees, with 600 accepting the package. The company says both actions will reduce it's workforce by 10%, creating a savings of $60 million for the year. In other cost saving measures, the retailer has suspended its share repurchase program, and lowered management incentive compensation.

However, the company is quick to say that the outlook is dim.
"We have not yet seen signs of an upturn in our business with worldwide sales in the quarter-to-date declining more than 20%, which is in-line with our expectation", says Michael J. Kowalski, chairman and chief executive officer.
Tiffany forecasts a decline in worldwide sales of 11%, and earnings of $1.50 - $1.60 per share for the fiscal year ending in January 2010.

For the fiscal fourth-quarter, which ended January 31, net income dropped a little over 75% to $31.1 million, or $0.25 per share compared to the previous year's $127.4 million, or $0.96 per share. Earnings for the full year were down 32%, $220.0 million, or $1.74 per share, vs. $323.5 million, or $2.34 per share from the previous year. Sales were in line with company expectations.

Fourth-quarter worldwide net sales plummeted 20% to $841.2 million, with sales declines in the Americas region having the biggest impact.

Sales in the Americas took the biggest hit out of the company's three regions. Fourth-quarter sales of $458.9 million were down 29%, and fiscal year sales were down 10% at $1.59 billion. U.S. same-store sales dropped 33% in the fourth quarter and 16% for the year. Despite being a major tourist attraction, sales at the New York flagship store were down 34% and 9%.

In the U.S., there were declines in every price range, however the declines were "somewhat smaller" in sales below $500 and larger in sales about $50,000, said Mark Aron, Tiffany's vice-president of investor relations.

In the Asia-Pacific region, sales declined 3% to $279.7 million in the fourth quarter, while sales increased 8% to $922 million for the year. In Europe, fourth quarter sales where down 2% at $95.3 million and up 17% to $284.6 million for the year.

Net inventories increased 17% to $1.6 billion due to lower than expect sales towards the end of the year, particularly the holiday season, the opening of new stores and an increase in raw material inventories.

Despite low sales, the company has no plans to follow the current trend of discounting prices that their competitors have embraced. "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 and Company brand", said Tiffany CFO, Jim Fernandez.

I agree with this strategy. Tiffany & Co. isn't just a company, it's a strong, iconic brand that people will always be willing to pay full price for. Everyone wants the "blue box".

Even though the luxury sector is going through turbulent times, people still want high quality clothing and jewelry that is timeless. In this morning's conference call, the company noted that they experienced "strong sales" of Tiffany Charms and their Atlas 1837 and Somerset Collections. The new Tiffany Metro and Tiffany Keys collections have also shown promise, according to Mr. Aron. What do all of these collections have in common? Understated, classic and timeless luxury. If they stick with promoting these lines, they just might beat expectations in the first quarter.

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