Tiffany & Co. reports today (Thursday) an 11% decline in net earnings and a net sales increase of 8% for the second quarter. A 10% increase in U.S. comparable store sales was not enough to offset a sales decline in Japan.

Tiffany’s net earnings are not growing in pace with sales

Net sales at the luxury retailer stood at $476.6 million versus $442.5 million a year ago. Worldwide comparable store sales rose 7%. Both net sales and comparable store sales growth benefited by 2% from a weaker U.S. dollar.

 

Net earnings were $36.6 million, or 25 cents per diluted share, compared with $41.1 million, or 28 cents per diluted share, in the prior year.

 

Similarly, the first half of the year also an increase in sales but a drop in net earnings.

 

During the period, net sales of $933.6 million were 11% higher than $838.3 million in the first half of 2003. Worldwide comparable store sales rose 10%.

 

Both net sales and comparable store sales growth included a 3% benefit from a weaker dollar. Net earnings were $76.9 million, or 52 cents per diluted share, versus $77.0 million, or 52 cents per diluted share, in the prior-year period.

 

International retail sales increased 7% to $180.1 million in the second quarter and comparable store sales increased 2% (both of which included a translation-related benefit of 6%).

 

In Japan, total retail sales declined 3% in the second quarter and comparable store sales decreased 4%.

 

In other Asia-Pacific markets, comparable store sales rose 19% in the quarter and 26% in the half (including translation-related benefits of 3% and 5%).

 

In Europe, comparable store sales increased 9% in the quarter and 15% in the half (including translation-related benefits of 9% and 12%).

 

Direct marketing sales declined 8% to $40.2 million in the second quarter.

 

Combined e-commerce and catalog sales rose 2% in the quarter and 7% in the half, due to an increase in the average order size and a decline in the number of orders.

 

Tiffany CEO Michael J. Kowalski said: “These second quarter results reflect better-than-expected sales performance in Tiffany's U.S. retail operations, while Direct Marketing sales were disappointing. As anticipated, Japan results continued to suffer from weak silver jewelry sales. We are addressing that category with new products and targeted marketing.”

 

However, Kowalski expressed optimism regarding the second half of the year, including an increase in net earnings. "Our full year 2004 expectations now call for 10% net sales growth and an increase in net earnings to approximately $1.55-$1.60 per diluted share, versus $1.45 per diluted share in 2003.”

 

He went on to say he expects comparable store sales in Japan to decline in the third quarter and increase modestly in the fourth quarter.