Tiffany’s optimistic despite earnings drop
New York-based fine jeweller Tiffany & Co has reported a dip in earnings for the second quarter. Net earnings fell from $50.5 million (£26.5 million) to $41.1 million in the three months ended 31 July. Sales rose 9 percent to $574.9 million, but weaker sales in Japan had an adverse affect on earnings. During a conference call the company did say that it would achieve higher growth in the long term and that it was on schedule to expand its total square footage by 7 percent this year. “Our ongoing plans for store openings and new product introductions sustain our confidence in Tiffany’s ability to achieve higher rates of growth for the long term,” said chairman and chief executive Michael J. Kowalski. He said that full-year earnings were estimated to reveal a “low double-digit increase in earnings before income taxes.”
Executive vice president and CFO James Fernandez said during the call that the company is optimistic about its “prospects for 2006 and beyond”. He also spoke of the “opportunity to expand Tiffany’s market penetration by entering many new markets”, adding, “We are increasing Tiffany worldwide square footage by approximately 7 percent, which is slightly above our mid-single-digit growth strategy.” Fernandez admitted that the company had been affected by higher production costs and increased costs for precious metals, “but as appropriate are addressing cost pressures through retail price adjustments.” He added that the entire industry was dealing with higher costs and said that “Tiffany is maintaining its competitive position and value proposition.”
International sales increased 10 percent to $223.2 million, while US sales gained 8 percent to $288.6 million. “Growth was seen across a range of product categories, with diamond jewellery maintaining a prominent role in the growth from high-end diamond jewellery to diamond engagement rings to new diamond and platinum pendants,” said Mark Aaron, vice president of investor relations. He added that Tiffany’s other relatively new fine jewellery collections, such as the Swing and Legacy collection, continued to provoke a “favourable response”. Silver and gold jewellery also continued to show growth, as did sales of the designer jewellery category, including Elsa Peretti and Paloma Picasso. The new Frank Gehry jewellery designs were “far exceeding” expectations, despite having only been introduced into one-third of all Tiffany’s stores at the end of the second quarter.