August 27, 2010 / 11:29 AM / 9 years ago

UPDATE 4-Tiffany sales disappoint as some shoppers pull back

* Q2 adj EPS 55 cents vs Street view 53 cents

* Q2 sales fall short of Wall Street view

* Sees FY EPS $2.60-$2.65 vs Street view $2.61

* Sees FY sales up 11 percent

* Shares down 4.5 percent (Adds GDP data, S&P note, updates shares)

By Phil Wahba

NEW YORK, Aug 27 (Reuters) - Tiffany & Co (TIF.N) reported softer-than-expected quarterly sales as U.S. customers spent less on its selection of lower-priced jewelry, and its shares fell nearly 5 percent.

The chain said sales in the Americas fell “modestly short” of company expectations. In particular, items priced at less than $500, relatively inexpensive for Tiffany, sold less briskly.

At the same time, higher-priced items sold well and boosted the average transaction size, evidence of an increasingly divided market: A broad base of consumers is still cautious about spending due to the weak economy, while the wealthy are sticking to their usual purchasing habits.

“People are buying what they view as more core and more essential, and not buying the lower price points,” said KeyBanc Capital Markets analyst Edward Yruma.

The economy’s recovery has proven more fragile than first thought. The U.S. economic growth was revised down on Friday to a 1.6 percent annual rate in the second quarter, pointing to an even softer performance in the third quarter. [ID:nN26193565]

Second-quarter sales rose 9.2 percent to $668.8 million, below the average Wall Street forecast of $690.2 million, according to Thomson Reuters I/B/E/S.

Tiffany reported net income from continuing operations of $67.7 million, or 53 cents per share, for the quarter, ended July 31, up 19 percent from $56.8 million, or 46 cents per share, a year earlier.

Excluding one-time charges, Tiffany earned 55 cents per share, above the 53 cents estimated by Wall Street analysts.

The company said it beat its own forecast and raised its full-year profit outlook by 10 cents per share to a range of $2.60 to $2.65. The average Wall Street estimate is $2.61.

Companywide sales at stores open at least a year rose 5 percent. In Asia, excluding Japan, same-store sales rose 7 percent before the effect of currency translation, while in Europe they rose 21 percent. Tiffany said China and Hong Kong were particularly strong markets.

Tiffany’s shares, which had risen 15.8 percent since a rally that started in early July, were down $1.91, or 4.5 percent, at $40.13 in afternoon trading.

Standard & Poor’s Equity Research analyst Marie Driscoll reiterated her “buy” recommendation, expecting market share gains and double digit sales growth in the next two years.

ASIA, WEALTHY SHOPPERS TO THE RESCUE

Chief Executive Michael Kowalski said in a statement that overseas sales accounted for nearly half of Tiffany’s sales, and the results “demonstrate the benefits derived from a growing global presence.”

The company expects overall sales in Asia to rise in the mid-twenties percentage range for the year, boosted in part by seven new stores. It expects worldwide sales to increase 11 percent.

So far in the current quarter, global sales are up by a “low-double-digit percentage.”

Tiffany’s second-quarter profits also received help from higher in-store prices that lifted gross margins by 2.7 percentage points to 57.8 percent.

Signet Jewelers Ltd (SIG.N), which operates Kay Jewelers and the more upscale Jared chain, also reported a profit increase on higher selling prices and improved demand for its higher-end jewelry. [ID:nN26181832]

Sales at Tiffany’s flagship store on Manhattan’s Fifth Avenue were up 8 percent, lifted in large part by tourists. In the New York area, same-store sales were up 12 percent.

The largest drag on second-quarter sales was Japan, where the company operates 57 of its 223 stores and where same-store sales fell 7 percent.

Tiffany said it would open 14 new stores during the current fiscal year. (Reporting by Phil Wahba; Editing by Derek Caney, John Wallace and Steve Orlofsky)

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