Harry Winston's 2Q Sales -20%, Profit -52%

Harry Winston Diamond Corporation reported that sales fell 20 percent year on year to $176.9 million during the second quarter that ended on July 31. However, the integrated diamond company reduced cost of sales by 30 percent to $104.7 million and gross margin improved to 40.8 percent of sales from 32.5 percent one year ago. Nonetheless, profit fell 52 percent to $4.8 million, Rapaport reports.
Mining segment sales plunged 31 percent to $61.5 million due to a 24 percent decrease in volume of carats sold, coupled with a 10 percent drop in rough diamond prices, the company stated. Harry Winston confirmed it had held back rough inventory until price stability returned to the rough diamond market. The company sold approximately 430,000 carats at an average price of $142 per carat, down from 570,000 carats for $157 per carat one year ago.
Harry Winston held approximately 700,000 carats of rough diamonds in inventory on July 31, with an estimated current market value of approximately $90 million.
Retail sales from Harry Winston's 21 salons fell 13 percent year on year to $115.4 million. Operating profit, however, jumped 16 percent to $8 million and gross margin improved to 49.8 percent of sales compared with 37.9 percent one year ago.
Salon sales across the Americas increased 32 percent year on year  to $35.8 million, European sales decreased 40 percent to $15.6 million, sales in Asia plummeted 43 percent to $34 million and sales in Japan increased 47 percent to $30.1 million. During the second quarter, there were $19.1 million of high-value transactions, which generally carry lower-than-average gross margins, compared with $55.6 million in the comparable quarter of the company's previous fiscal year. The total number of units sold increase by 40 percent year on year.
Harry Winston expects a trend of wealth creation in emerging markets to continue this year, combined with increasing tourism in established markets to remain key drivers for a surge in demand for luxury jewelry. Over the long term, consumer brand loyalty for luxury products is expected to remain strong, according to the company. In the near term, the sovereign debt crisis in Europe and the resulting slower growth in the export-driven emerging markets represent challenges that could impact demand for luxury jewelry and watch products. But Harry Winston believes it is well positioned moving into the second half of the year to gain market share, supported by a strong advertising campaign and product assortment, and its global distribution network in prime locations.
Robert Gannicott, the chairman of Harry Winston, stated, ''This quarter has seen transaction numbers and margins grow in our luxury goods segment even as we have withheld rough diamonds, from a soft diamond market, rather than sell at depressed prices.''