Tiffany sees Asia, new silver jewelry fueling sales this year

Fri Mar 22, 2013 11:38am EDT

A woman exits the Tiffany & Co. store on Wall St. in New York, March 18, 2013. REUTERS/Brendan McDermid

A woman exits the Tiffany & Co. store on Wall St. in New York, March 18, 2013.

Credit: Reuters/Brendan McDermid

(Reuters) - Tiffany & Co (TIF.N) said the pace of its worldwide sales growth would pick up this year, helped by faster growth in Asia and a more compelling selection of lower-price silver jewelry.

The forecast of 6 percent to 8 percent sales growth points to a return to the more robust gains Wall Street has come to expect from Tiffany, which also reported a higher-than-expected quarterly profit on Friday. Sales suffered last year from weak demand for its silver items and a slowdown in China.

Tiffany's shares rose nearly 3 percent, although Chief Financial Officer Pat McGuiness acknowledged the forecast was still below the company's long-term goal of annual sales growth of 10 percent to 12 percent.

"It's relief that things are normalizing in China and in its silver jewelry," Morningstar analyst Paul Swinand said.

The New York company had lowered its own projections several times in the last year, including after weak holiday sales. This raised fears that its torrid growth of recent years was over.

Tiffany, famed for its blue boxes, said it expected sales in Asia, excluding Japan, to rise at a mid-teens percentage rate this year, compared with an 8 percent increase last year.

In recent weeks, fashion brands Burberry Group (BRBY.L) and Hugo Boss AG (BOSSn.DE), handbag maker Coach Inc (COH.N) and Swiss watchmaker Swatch Group SA (UHR.VX) have also said they were upbeat about China.

The renewed confidence was in stark contrast to some top European luxury brands. British handbag maker Mulberry (MUL.L) issued a profit warning on Friday because of drop in spending by tourists, and Danish luxury stereo and television maker Bang & Olufsen (BO.CO) cut its revenue outlook.

THE RIGHT MIX

Tiffany has struggled to find the right mix between the expensive statement jewelry it is famous for, and the more-affordable silver items that generate one-quarter of sales and comprise its most profitable category. Silver sales sagged last year as price-conscious shoppers pulled back on nonessentials.

Many Wall Street analysts have said Tiffany has hurt itself by failing to offer shoppers compelling jewelry in that category. The retailer said it would ramp up those offerings.

"While maintaining the right strategic balance remains critical, you will see a range of exciting new designs in 2013 including silver sterling silver with entry-level price points below $500," Chief Executive Officer Michael Kowalski said on a conference call.

Some of that will be part of a new collection timed for the spring premiere of the motion picture "The Great Gatsby." The line will also include more-expensive jewelry, like diamond and platinum pieces.

STILL LAGGING

Tiffany's forecast implies a sales range this year of $4.02 billion to $4.1 billion, mostly above the $4.03 billion Wall Street analysts were projecting, according to Thomson Reuters I/B/E/S.

Global sales rose 4.1 percent to $1.24 billion in the fourth quarter ended January 31, while sales at stores open at least a year were unchanged. The results were consistent with the November-December sales that Tiffany reported right after the holiday season.

Still, Tiffany said sales fell 3 percent at its Fifth Avenue flagship store in Manhattan. That compares with a 2 percent drop in the first two months of the quarter, suggesting worsening trends in January.

"There is still plenty of global economic uncertainty," CFO McGuiness said on the call.

While Tiffany shares were up 2.7 percent at $69.72 in morning trading, they were still down from a year ago.

During the quarter, earnings rose to $179.6 million, or $1.40 per share, from $178.4 million, or $1.39 a share, a year earlier. The results beat analysts' estimates by 5 cents a share.

Besides the slump in silver jewelry, higher diamond and gold prices pressured Tiffany's gross margin. The retailer refrained from raising prices last year, aware of shoppers' caution about spending, but McGuiness said it was doing so this year.

The company forecast a profit of $3.43 to $3.53 per share this fiscal year. Wall Street analysts were expecting $3.50.

As Tiffany's same-store sales cooled last year, many Wall Street analysts wondered if the retailer was expanding too quickly.

But Tiffany said on Friday that it planned to open 15 stores this year, including seven in Asia. It will close one store in Japan, its second-largest market, but one of its slowest-growing now.

Tiffany will also restart its Web site to spur online sales, which last year accounted for 6 percent of revenue.

(Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn)

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