UPDATE 4-Tiffany quarterly results sparkle; ups FY view

Fri Aug 28, 2009 12:22pm EDT

* Q2 EPS ex-items 39 cts, beats Wall St view by 6 cts

* Sales fall 16 pct but top Street expectations

* Raises FY EPS view to $1.65-$1.75 from $1.50-$1.60

* Shares up 8.7 percent (Adds analyst comments, outlook details, byline)

By Aarthi Sivaraman

SEATTLE, Aug 28 (Reuters) - Tiffany & Co (TIF.N) posted higher-than-expected quarterly earnings on cost cuts and slightly recovering demand for jewelry, and raised its full-year outlook, sending its shares up 8.7 percent.

The higher forecast reflects stronger-than-expected results in the second quarter, rather than a material change in its view for the second half of the year. In fact, executives on a conference call said, it assumes economic conditions do not change meaningfully from their current state.

The jeweler, which has faced months of weak sales in the recession, said on Friday that demand in various markets such as Europe, China and Australia showed modest improvement in the second quarter compared with the first quarter.

Tiffany still expects sales to fall this year, albeit at a slightly lower rate, due to easing declines in markets outside the Americas region and easier comparisons with the dismal results from a year earlier.

"Our geographical diversification is a significant advantage," said spokesman Mark Aaron on a conference call.

Edward Jones analyst Matt Arnold said Tiffany was being conservative in not raising outlook for the rest of the year.

"It is appropriate for them to take that mindset," Arnold said. "I think investors like seeing management plan conservatively."

Tiffany shares, which have doubled since March through Thursday's close, were up $2.92 to $36.67 in early Friday afternoon trading on the New York Stock Exchange.

RETURN TO LUXURY?

The high-end New York-based retailer said jewelry above $50,000 continued to face the steepest declines, while lower-priced items, like $150 silver charms, fared better.

The trend showed affluent shoppers -- who can afford Tiffany baubles that can cost upward of $100,000 -- are still hesitant to spend as they did before the recession and financial crisis.

But Arnold said he was encouraged by slight improvements.

"It is not what we saw a few quarters ago, or even the last couple of quarters for that matter,' Arnold said. "People had really locked up their wallets."

"At some point, the luxury buyer is going to have to come back for this story to work," he said. "(That would mean) the economy and employment come back, and disposable income therefore comes back. All those things hinge on one another."

Tiffany's net profit fell to $56.8 million, or 46 cents a share, in the second quarter, ended July 31, from $80.8 million, or 63 cents a share, a year earlier.

Excluding one-time items, profit was 39 cents a share, beating analysts' average forecast of 33 cents, according to Reuters Estimates.

Net sales fell 16 percent to $612.5 million. Analysts had expected $604.9 million.

Tiffany has taken a firm stand against discounting its jewelry, even as lower-priced chains such as Zale Corp ZLC.N offer discounts to attract reluctant shoppers.

"They are doing a good job navigating through the discounting environment," said JMP Securities analyst Kristine Koerber. "We've seen improvement in all regions sequentially."

Tiffany cut selling, general and administrative expenses by 14 percent in the quarter. The company will pursue a slower pace of store expansion this year due to the recession.

The company forecast full-year earnings of $1.65 to $1.75 a share from continuing operations, up from its prior forecast of $1.50 to $1.60. Analysts were expecting $1.58.

Tiffany now sees sales declining about 10 percent this year. It had earlier forecast a drop of 11 percent.

Tiffany expects a a mid-teens percentage rate sales decline in the Americas, including a high teen rate decline in U.S. same-store sales. By comparison, it forecast a low-single-digit decline in the Asia-Pacific market and Europe.

The company was "picking up share" outside the United States, particularly in smaller Asian markets outside Japan, said Cowen & Co analyst Laura Champine. (With additional reporting by Dhanya Skariachan in Bangalore, editing by Lisa Von Ahn, John Wallace and Tim Dobbyn)

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