Never underestimate the power of a well-known brand. The Tiffany name, backed by an incredible offering of quality jewelry and other luxury goods, is a magnet for both American shoppers and foreign tourists who come to the U.S., especially from Europe.

 

Tiffany’s U.S. sales surged ahead by 12 percent in the third quarter ended October 2007, and same-store sales in the company’s American stores were up by a robust 8 percent. Worldwide, the figures were even better for the three-month period ended October: Total sales were up 16 percent in constant dollars (reported up 18 percent prior to currency translation), and worldwide same-store sales rose by 9 percent in constant dollars (+11 percent prior to currency translation).

 

In November, the first month of the all-important holiday selling season, Tiffany management said that sales trends were solid throughout the month in the U.S. market as well as international markets. However, the company is forecasting that U.S. same-store sales are likely to rise by a mid-single digit level in the fourth quarter; that would be the weakest performance this year. On the other hand, it is a level which most jewelry merchants won’t achieve, based on current U.S. industry sales trends.

 

Third Quarter Highlights
The following table summarizes financial highlights from Tiffany’s October quarter, based on constant dollar comparisons (excluding currency translation gains and losses).

 

 

 

 

The following are management comments and our analysis of Tiffany’s third quarter.

 

• Sales in the U.S. market were strong for Tiffany. However, they varied significantly by month: sales were up 11 percent in August, up 2 percent in September, followed by a robust +12 percent gain in October. Sales were driven by a higher average ticket and more transactions. Total U.S. retail sales rose by 12 percent in the three months ended October, while same-store sales rose by 8 percent.

• The largest sales gain occurred in goods priced between $4,000 and $50,000. This is a departure from prior periods, when the strongest sales gains came in goods priced over $50,000.

• Geographically, sales gains were broad-based. Stores in California and Florida posted gains; these regions had been soft earlier in the year.

• Tiffany’s New York Fifth Avenue flagship store posted a whopping 25 percent sales gain. Much of the gain came from overseas tourists spending their strong currencies on Tiffany merchandise in this world-renowned store.

• The strongest product categories in the October quarter included the following:

• Statement jewelry
• Engagement jewelry; solitaire diamond rings were up nearly 20 percent
• Fashion jewelry
• Silver and gold jewelry
• Designer jewelry
• Watches and tableware

• International sales were very strong, with total sales up 18 percent in constant dollars (reported up 22 percent prior to currency translation), and same-store sales were up 10 percent. Even Japan posted a positive sales gain of +6 percent; same-store sales, however, were down 1 percent (constant currency) in Japan. Virtually every other region of the world generated double-digit sales increases in the October quarter.

• Tiffany’s gross margin fell by a very modest 30 basis points to 53,7 percent in the quarter due to a higher mix of wholesale diamond sales which carry almost no margin.

• For the year, Tiffany will add 7 new stores in the U.S. and 11 new units in overseas markets. Its store square footage will rise by 8 percent by the end of 2007.

• We expect to continue to see strong new store growth. With Tiffany’s new store concept, called Tiffany Collections, the company can open up to 170 stores in the U.S., a far greater number than its previous forecast of 100 units. The company currently operates 68 stores in the U.S.  

• The company completed the sale of its Little Switzerland division during the third quarter. Prior year financials have been adjusted to reflect the divestiture of these stores.

• For the fourth fiscal quarter ending January 2008, including the all-important holiday selling season, management expects U.S. same-store sales to be up in a mid-single digit range. For the full year, total company sales are likely to be up 15 percent (all markets), while total U.S. sales are forecasted to be up by 9-10 percent for the twelve-months ending January 2008.