January 2008
Tiffany & Co. (NYSE: TIF) reported that its worldwide sales for the November 1 - December 31, 2007 holiday period increased 8% over the prior year to $867,262,000. On a constant-exchange-rate basis that excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, net sales rose 6% and worldwide comparable store sales rose 1%. Results are based on unaudited sales.
Sales by channel of distribution were as follows:
Michael J. Kowalski, chairman and chief executive officer, said, "Tiffany's holiday sales results were mixed but we still expect to achieve strong earnings growth in the fourth quarter ending January 31. While we were delighted with continued strong sales growth across Europe and the Asia-Pacific region outside Japan, U.S. sales softened after robust growth for much of the year. In addition, a 10% increase in New York flagship store sales in the holiday period was driven by foreign tourist spending. We believe a recent pullback in U.S. spending likely reflected a more cautious attitude among customers about the near-term direction of the economy and related factors. From a product perspective, we saw healthy sales growth in the engagement jewelry and silver jewelry categories."
Assuming no material change in trends through the end of the fiscal year on January 31, the Company's financial performance expectations for fiscal 2007 call for (i) net sales growth of approximately 14% and (ii) net earnings from continuing operations per diluted share in a range of $2.60 - $2.63 which includes (a) a $0.48 per diluted share after-tax gain from the sale and leaseback of Tiffany's Tokyo flagship store and (b) a $0.04 per diluted share after-tax contribution to The Tiffany & Co. Foundation, both of which were recorded in the third quarter, and © a pre-tax charge of approximately $20 million, or $0.09 cents per diluted share after tax, to be recorded in the fourth quarter and related to the discontinuance of certain watches as a result of the Company's recent agreement with The Swatch Group Ltd. to expand distribution of watches. Excluding those three items, it equates to $2.25 - $2.28 per diluted share and compares with a previous expectation of $2.25 - $2.30 per diluted share. Net earnings, which include a charge related to the sale of Little Switzerland and its losses from operations, are expected to be in a range of $2.40 - $2.43 per diluted share.
The Company has made loans to Tahera Diamond Corporation which, combined with accrued interest, total approximately $50 million. Tahera is currently attempting to raise additional capital necessary for continued operation of its Jericho mine. If their efforts are not successful or the expectations of the mine's operations change, the ability for Tahera to continue operations and the development of the mine project may be at risk. As a result, the fair value and collection of the loan receivable may be affected and could result in an impairment charge, which is not included in the above earnings projections.
Mr. Kowalski added, "Despite soft U.S. sales, we are still projecting the strong fourth quarter earnings growth (excluding one-time charges) that we expected prior to the holiday season due to substantially better gross margins and expense savings. It is also noteworthy that, excluding the various one-time factors, earnings per diluted share for the year should exceed the 15% growth objective we established at the start of 2007. In addition, we have been active in our share repurchase program this year, and in the current quarter through December 31 have spent $321 million to repurchase 6.9 million shares at an average price of $46.73 per share."
He continued, "Tiffany has aggressive plans for 2008, which include adding stores in the U.S. and in a greater number of international markets which, in total, will increase our store base by 12-15%; introducing a wide range of new products; and further expanding awareness among design-and quality-conscious customers, all of which will benefit overall results. We are still engaged in our planning process and, in light of these holiday sales results and uncertainty about near-term trends in U.S. consumer spending, we are further analyzing our sales and earnings growth objectives for 2008. We will provide guidance to investors when we report fourth quarter and full year results on March 24."
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