(IDEX Online News) - The dust has finally settled on jewelers’ all-important fourth quarter 2010 results, and it was a better selling environment than anyone could have hoped for. Sales were far stronger than expected, margins rose, and profits were up.

 

For the full year, U.S. jewelry sales set a new record which exceeded the prior record year of 2007, when the economy was humming along on all cylinders and consumer spending seemed unbridled.

 

The only shadow fell in the fourth quarter: specialty jewelers’ December 2010 sales were slightly below the prior year, while jewelry sales at other merchants were much stronger. Clearly, specialty jewelers have not yet developed a credible “value” proposition.

 

As an aside, if you are wondering why we are just now – well into the second calendar quarter of 2011 – publishing final jewelry industry financial results for the fourth quarter of 2010, it is because year-end figures take much longer to tabulate. The government will continue to make minor revisions in industry data until mid-year 2011. Public companies have ninety days after the end of their fiscal year (typically January) to release their figures. So, most of the fourth quarter and year-end data doesn’t begin to flow until sometime in late March or early April.

 

Fourth Quarter Sales Up Double-Digit Levels for Public Companies

Virtually every publicly held jewelry company – with the exception of Zale Corporation – generated double-digit sales gains in the U.S. market during the all-important fourth quarter of 2010. Every publicly held jeweler – including Zale – took market share from other specialty jewelers and other merchants who sell jewelry. In short, it was a celebratory period for many merchants in the U.S. jewelry industry.

 

The following table summarizes jewelry sales by publicly held jewelry retailers in the fourth quarter of 2010 in the U.S. market.

 

Company $ Millions Revenues 4Q 2010 % Change 4Q 2010 vs 4Q 2009 Harry Winston (US) $132.7 +89.1% Lazare Kaplan * $28.9 +25.7% Movado (All) $101.0 +23.1% Tiffany (Global) $1,101.2 +12.2% Blue Nile $114.8 +11.5% Tiffany (US) n/a +10.2% Sterling Jewelers $1,007.0 +10.2% Zale Corporation (All) ** $626.4 +7.6% U.S. Total Jewelry $22,447.0 +5.4% U.S. Specialty Jewelers $10,752.0 +3.7% * Lazare Kaplan: Quarter ended November 2010 ** Zale sales include Canadian revenues

 

 

Fourth Quarter Profits Up Sharply

Every publicly held U.S. jeweler reported improved profits or a smaller loss in the fourth quarter of 2010, when compared to the same quarter in 2009. Further, almost every company generated margin improvement in the quarter, with one exception: Harry Winston. Despite a modest decline in its profit margins – both gross margin and pretax margin – the company brought an additional $10 million in profits to the bottom line because sales surged.

 

The following table illustrates public jewelry companies’ gross margin, pretax margin, and pretax profits for the fourth quarter of 2010 compared to the same period in the prior year. While Movado’s fourth quarter loss may appear to be disappointing, its key period is the third quarter when it ships goods to retailers; in 2010, Movado generated roughly one-third of its annual sales in the third quarter and a solid profit of over $17 million.

 

Company Gross Margin Pretax Profits Pretax Margin Tiffany & Co. 60.9% vs 58.7% $267.1 vs $210.0 24.3% vs 21.4% Sterling/Signet 40.8% vs 36.0% $167.9 vs $121.5* 16.7% vs 13.3%* Zale 50.3% vs 49.8% $34.1 vs ($4.9) 5.5% vs (0.8%) Blue Nile 22.0% vs 21.7% $9.3 vs $8.4 8.1% vs 8.1% Harry Winston** 40.0% vs 44.1% $5.7 vs ($5.3) 4.3% vs (7.6%) Movado *** 54.5% vs 46.7% ($23.9) vs ($24.2) (23.7%) vs (29.5%) * Sterling/Signet: Gross margin is corporate; “pretax profits” are U.S. operating profits prior to home-office expenses ** Harry Winston: Retail operations only *** Movado: Continuing operations

 

 

Full Year Jewelry Sales Show Solid Gain

If the U.S. jewelry industry were a wine, we would call 2010 a “vintage year.” Sales were up, and profits were solid.

 

There were two noteworthy trends:

 

·         Sales gains moderated as the year progressed. In part, this was due to more difficult comparisons against the later quarters of 2009, but we also felt that consumer demand momentum may have slowed very modestly. A plethora of unsettling global events, coupled with a dithering economic recovery in America, probably dampened consumers’ spending enthusiasm. The graph below illustrates jewelry sales gains by quarter in the U.S. market during 2010 for both total jewelry sales and specialty jewelers’ sales.

Source: U.S. Department of Commerce

 

·         The fourth quarter – and the holiday selling season – continues to become slightly less important. The table shows the modest decline in fourth quarter sales as a percentage of total annual sales over the past five years.

Every public company with a fiscal year end of December 2010 or January 2011 reported solid sales gains that were above the industry average. Lazare Kaplan, with a fiscal twelve months ended November 2010, posted a decline in revenues related to weak rough diamond sales related to some problems with its mining partners. Its results should not be viewed as indicative of either the rough or polished diamond segment of the industry. Clearly, the large retail jewelry chains are picking up market share at the expense of the smaller independent specialty retailers.

 

The table below summarizes sales gains for the full year for public jewelry companies and the total jewelry industry. 

 

Company $ Millions Revenues Year 2010 % Change Year 2010 vs Year 2009 Harry Winston (US) $344.8 +53.2% Tiffany (Global) $3,085.3 +13.9% Blue Nile $332.9 +10.2% Tiffany (US) n/a +10.2% Movado (All) $362.2 +9.3% Sterling $2,744.2 +8.0% Zale * $1,658.3 +0.6% Lazare Kaplan ** $117.3 (31.0%) U.S. Total Jewelry $63,207.0 +7.4% U.S. Specialty Jewelers $29,638.0 +4.9% *Zale: Trailing twelve months sales as of January 2011 vs January 2010 ** Lazare Kaplan: Trailing twelve months ended November 2010 vs November 2009

 

 

Full Year Profits Up Solidly

Virtually every publicly held company reported improved profits or a smaller loss in 2010, when compared to 2009. Further, almost every company generated margin improvement, with one exception: Harry Winston. Despite a modest decline in its gross margin, the company posted a profit for the year versus a loss in 2009. Further, Lazare Kaplan has not reported financials other than sales for nearly two years, so no profit figures are available.

 

The following table illustrates public jewelry companies’ gross margin, pretax margin, and pretax profits for 2010 compared to the prior year.

 

Company Gross Margin Pretax Profits Pretax Margin Tiffany & Co. 59.1% vs 56.5% $547.4 vs $390.0 17.7% vs 14.4% Sterling/Signet 36.2% vs 32.6% $342.7 vs $235.8* 12.5% vs 9.2%* Blue Nile 21.6% vs 21.6% $21.5 vs $19.7 6.5% vs 6.5% Harry Winston** 47.1% vs 48.0% $10.4 vs ($17.5) 3.0% vs (7.8%) Movado *** 54.8% vs 52.8% ($11.8) vs ($25.9) (3.3%) vs (7.4%) Zale **** 50.9% vs 48.9% n/a n/a * Sterling/Signet: Gross margin is corporate; “pretax profits” are U.S. operating profits prior to home-office expenses. ** Harry Winston: Retail operations only. *** Movado: Continuing operations. **** Zale: Trailing 12 months ended January 2011 vs January 2010. Pretax profits distorted by unusual items, so this financial metric is not shown

 

Jewelry: What’s Hot

While the “fashion police” would suggest that sales trends in last year’s fourth quarter were eons ago, in terms of the rapid evolution of the fashion world, we’d suggest that jewelry fashion trends do not change as rapidly as in the “rag” (soft goods) business.

 

Here’s a recap of strong categories, as mentioned by both public jewelry companies and the IDEX Online sample of specialty jewelers.

 

·         Bridal jewelry

·         Sterling silver

·         Pearls

·         Colored gemstone jewelry (mixed comments on this category)

·         Rolex watches

·         Pandora

·         Fashion jewelry

·         Estate jewelry

·         Custom jewelry

·         Affordable designer jewelry

·         Branded jewelry

·         Exclusive and proprietary jewelry

·         Lower price points

 

In addition, almost every jeweler reported that their average ticket increased during the year, and the number of orders and transactions rose substantially.