March 24, 2010 / 2:53 PM / in 8 years

UPDATE 2-Tiffany sees margins, store count rising

* Store count to rise as much as 8 pct/year

* Operating margins could match record 2007 levels

* Shares down 1.5 percent in late morning trading (Adds details on market share, Japan, byline, updates shares)

By Phil Wahba

NEW YORK, March 24 (Reuters) - Tiffany & Co (TIF.N) aims to increase its store count by as much as 8 percent per year for the “foreseeable future,” and the upscale jeweler’s operating margins could again hit all-time highs reached in 2007, Chief Executive Michael Kowalski said on Wednesday.

Tiffany, which on Monday reported strong holiday results, can “ultimately double its stores in the U.S. and Europe,” Kowalski said at an investor conference that was broadcast over the Internet.

The company operated 220 stores worldwide as of Jan. 31, 2010 and said on Monday it planned to open another 17 locations this year. [ID:nN22185211]

While Tiffany reported a fourth-quarter profit that was nearly five times greater than a year earlier, the company’s margins took a slight hit because of higher diamond and precious metals costs.

Its operating profit margins in 2009 were 16.3 percent. Kowalski said that matching an all time high of 19.6 percent reached in 2007, before a financial crisis and recession severely curbed the luxury market, was “well within reach” if its sales growth continues.

Sales at Tiffany stores open at least a year rose 11 percent in the United States during the quarter that included Black Friday and the Christmas shopping season, which accounts for about 40 percent of overall jewelry sales.

One trouble spot is Japan, where Tiffany operates 57 stores and where sales fell 9 percent during the holiday quarter. Kowalski said he expects sales there to be weak over the long-term.

    UP FOR GRABS

    Kowalski said the distress in the jewelry industry last year had left an opening for Tiffany to win market share from rivals and that his plan to raise marketing spending this year was directly aimed at a new set of shoppers.

    “There are many orphaned customers out there looking for a new relationship,” Kowalski said.

    Tiffany and downmarket rivals such as Signet Jewelers Ltd (SIG.N) SIG.L and Zale Corp ZLC.N have gotten some relief from competitive pressures after a number of jewelers, including Fortunoff and Finlay Enterprises, went bankrupt last year.

    A report by Citigroup, which hosted the investor conference, found that between 5 percent and 10 percent of the U.S. jewelry market was now “up for grabs” following those bankruptcies.

    Tiffany shares were down 70 cents, or 1.5 percent, at $47.06 in morning trading on the New York Stock Exchange.

    Reporting by Phil Wahba, editing by Dave Zimmerman

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