One year ago, Tiffany announced that its U.S. same-store sales fell by 31 percent in the April 2009 quarter. Many people wondered if this might mark the end of the jewelry business, at least as we had known it for decades.

 

This year, frowns have turned to smiles as Tiffany’s sales rebounded sharply. For its quarter ended April this year, same-store sales bounced back by a solid 15 percent in stores in the Americas.

 

While Tiffany’s sales in the Americas region in the April 2010 quarter – $315 million – are still well below the record $374 million it posted in the April 2008 quarter, they have shown a solid recovery from the $259 million it generated in the first three-month fiscal period last year.

 

The company’s 15 percent sales increase had a dramatic leveraging impact on the quarter’s profits from continuing operations: they rose to $64.4 million, up 135 percent from last year’s $27.4 million in the April quarter. This profit leverage came from three broad areas: 1) a higher gross margin; 2) a lower operating expense ratio; and, 3) leverage of fixed costs.

 

The table below summarizes key financial data for Tiffany’s first fiscal quarter ended April 2010.

 

 

April Quarter Highlights

The following are highlights from Tiffany & Co.’s first fiscal quarter ended April 2010.

 

·        Sales, which were above management’s expectations, were generally strong across most regions and across all price points. The following table summarizes sales by global geographic region on a constant-currency basis.

We note that Tiffany has changed the way it reports sales by geographic regions. It no longer reports sales for the U.S.; rather, it reports sales for the “Americas” region which consists of both North America (U.S. and Canada) and South America. Sales in the U.S. comprised 91 percent of sales in this region last year. Further, it has made adjustments in the way it reports sales in the Asia-Pacific region; specifically, Japan is no longer included, but is now a separate region.

Region	Total Sales	Same-Store Sales
Worldwide	18%	10%
Americas	20%	15%
Japan	(7%)	(10%)
Asia-Pacific	37%	21%
Europe	19%	14%

  

o       Sales of Statement Jewelry over $50,000 were especially strong in this year’s April quarter, after being particularly weak last year.

 

o       Engagement jewelry demand was quite strong, due largely to the company’s expansive assortment of designs and strong inventory position. Today’s bride wants “something different”, and Tiffany was poised to offer a highly differentiated diamond engagement ring.

 

o       The fine jewelry category also posted solid growth, reflecting gains in Celebration Ring sales linked to increased marketing efforts. Sales of other core collections were also strong, including Victoria, Metro, and Hearts.

 

o       Fashion jewelry, including charm collections, was strong.

 

o       Management noted that sales gains were solid with its Peretti and Picasso collections.

 

o       Watch sales, a category that has been weak across the industry, posted solid gains for Tiffany in the April quarter.

 

·        Tiffany management said that it “adjusted retail prices in the first quarter to address market conditions and product cost increases.” We think this is code-speak for “we raised retail prices.”

 

·        Tiffany’s gross margin rose to 57.8 percent of sales versus last year’s 55.7 percent. The increase was largely due to sales leverage of fixed costs as well as manufacturing efficiencies. Tiffany’s manufacturing facilities produce 60 percent of all the goods that it sells.

 

Looking Beyond the First Quarter

Tiffany management provided Wall Street investors with an outlook for the future.

 

·        About 16 new store openings are planned in 2010. In the Americas, new stores are slated for Baltimore MD and Jacksonville FL, the Woodlands in Houston TX, and in Santa Monica. Two more units are planned in the Americas, but the locations have not yet been announced. In the Asia-Pacific region, eight new units are planned in China, Korea, Singapore, and Taiwan. In Europe, two more company-owned stores are slated to open in 2010.

 

·        Tiffany plans to launch e-commerce in Austria, Belgium, France, Germany, Ireland, Italy, The Netherlands, and Spain later this year.

 

·        Tiffany has an active new product introduction program planned. In Japan, the company recently introduced a new collection of jewelry with yellow diamonds. Additions are planned for the Keys & Charms collection. Tiffany Garden, which combines diamonds and color gemstones with designs from the company’s archives, is planned for later this year. Other new collections are planned, some as extensions to existing collections. New watches are slated for the company’s product line. Finally, the company will introduce designer leather handbags and accessories this year. Tiffany keeps its customers coming back by offering a continuing flow of new products. This is a lesson for all jewelers. Far too many U.S. jewelry retailers cut back on introductions over the past few years; thus, there is no reason for customers to shop in those stores when they are looking for “something new.”

 

·        Management noted that sales through the first month (May) of the second fiscal quarter remain solid. Assuming that the current sales pace remains reasonably intact, management’s full year forecast for Tiffany sales and profits is as follows:  

 

o       Worldwide sales +11 percent

o       Americas sales up low double-digit levels

o       Japan sales down by a low single-digit level

o       Asia-Pacific sales up in the mid-20 percent range

o       Europe sales up by a high single-digit level, after currency translation (mid-teen sales gain prior to currency adjustments – clearly, the company is looking at the possibility of a weaker Euro)

o       Profits up 4 percent from earlier forecasts, prior to unusual expenses