Harry Winston FY08 Sales +22%, But Weak Dollar Hurts Earnings

Harry Winston Diamond Corporation’s (HWDC) fourth quarter sales increased 22 percent to $188.2 million for the period ending January 31, 2008. Earnings from operations rose 59 percent to $59.1 million. Net earnings grew to $90.4 million, or $1.55 per share, compared to $27.3 million or $0.47 per share in the prior year period.

Annual sales grew 22 percent to $679.3 million with consolidated earning from operations up 48 percent to $217.7 million for fiscal 2008. The company posted net earnings of $106.4 million or $1.82 per share compared to $104.3 million or $1.79 per share in the previous year.

Net earnings were reduced, however, by a $43.3 million foreign exchange loss, a result of the 17 percent strengthening of the Canadian dollar relative to the U.S. dollar. 

HWDC’s mining segment posted a 24 percent annual increase in sales to $413.8 million, while earnings from mining operations totaled $220.7 million, a 53 percent increase. The company’s share of diamond production at Diavik, recorded on a calendar basis, increased by 22 percent to 4.8 million carats for the year ended December 31.

Diavik is a joint venture between HWDC (40 percent) and Diavik Diamond Mines Inc. (60 percent), a wholly owned subsidy of Rio Tinto plc. 

The retail segment saw a 17 percent increase in sales to $265.5 million. A $3.1 million retail loss from operations, compared to earnings from operations of $2.3 million in the prior year, reflects increased investment for its continuing international salon expansion. Five new salons were opened in 2008, compared to three in the prior year.

CEO and Chairman Bob Gannicott commented, “Our two premium assets, at the most profitable poles of the diamond business, inform each other with respect to pricing and polished diamond supply. 

“This enables rough diamond sales from the mine to be priced quickly and accurately against market changes. It also connects the jewelry and watch business directly to the diamond polishers that are the mine’s customers, making a more efficient supply chain.” 

Gannicott continued by saying that the company’s plan for the Diavik mine ensures the mine’s life beyond 2020 and that there are still proven reserves at the mine of more than 77 million carats, with an additional 11 million in inferred resources. 

In addition, the company noted that, while rough diamond prices remained strong throughout fiscal 2008, upward trend in prices was particularly evident in the larger, better-quality ranges, which began the year positively and continued to rise throughout the year. After softening throughout fiscal 2007, demand for lower end goods experienced robust growth in the second half of fiscal 2008.

At the end of the year, the polished market showed strong sales growth in China, India and the Middle East which offset the more moderate demand from the U.S. market, HWDC said in a statement. Prices rose in line with demand, with the lower-quality ranges of polished diamonds benefiting from the continuing scarcity of larger, better-quality goods.

Finally, the global luxury diamond retail market in 2007 experienced significant demand. Strong momentum from Chinese, Russian and Middle Eastern consumers more than offset softness in spending from U.S. customers as a result of the volatility in the U.S. financial markets in the broader retail jewelry market, the company noted.