Tiffany's Profit -30%, Lowers Guidance for 2012

Tiffany & Co. reported that worldwide revenue rose 3.7 percent year on year to $852.7 million for the third quarter that ended on October 31. However, cost of sales surged 12.2 percent to $388.5 million and earnings from Tiffany's operations fell nearly 20 percent to $117.3 million, Rapaport reported. Net income for the quarter fell 29.6 percent to $63.2 million or 49 cents per diluted share.
Comparable-store sales rose 1 percent worldwide. Gross margins fell to 54.4 percent compared with 57.9 percent one year ago. This drop was largely the result of rising precious metals and diamond costs, according to Tiffany. Furthermore, the sales mix favored higher-priced, lower margin products, and reduced sales leverage on fixed costs pressured margins in the quarter. The retailer's inventory level rose 10.8 percent to $2.3 billion due to growth in finished goods, expanded product assortments and higher product acquisition costs. Long-term debt jumped 44.9 percent to $781.6 million.
Revenue from the Americas improved 3 percent year on year to $400 million and same-store sales rose 1 percent.  Tiffany's flagship store in New York experienced a  5 percent increase in sales during the period.
In the Asia-Pacific region, Tiffany reported sales at a constant-exchange-rate rose 2 percent, however, they fell 2 percent year on year in terms of dollar value to $188 million and comparable-store sales declined 4 percent.  Japan's stores experienced a 3 percent increase in revenue in terms of local currency, while same-store sales rose 5  percent, but overall, revenue in dollars increased only slightly to $147 million.
Across Europe, sales rose 11 percent in local currency and same-store sales jumped 8 percent. But in terms of dollars, sales rose 6 percent to $98 million.
Tiffany added 12 stores during the third quarter with seven across the Americas; three in the Asia-Pacific region and one each in Europe and Japan.
The retailer lowered its 2012 guidance to a range of $3.20 to $3.40, compared with an earlier prediction in the range of $3.55 to $3.70 per diluted share. It expects worldwide sales to increase between 5 percent and 6 percent, down a full percentage point from earlier expectations.
Michael J. Kowalski, the chairman of Tiffany, said,  “Three months ago, we had anticipated that third quarter results would be affected by continued economic weakness in many markets as well as by challenging comparisons to last year when net sales were up 21 percent and net earnings had increased 52 percent excluding nonrecurring items. However, gross margin was weaker than we expected and Tiffany’s effective tax rate was higher than we expected. As a result, net earnings were below our expectations.
“We continue to maintain a cautious near-term outlook about global economic conditions. However, we expect to see improving results in this holiday season, partly benefiting from easing year-over-year sales comparisons, but also tied to the success of new Tiffany & C. stores we’ve added this year, new product introductions and more product-focused marketing communications,” he said.