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Tiffany 4Q profit sinks, still beats view

Shoppers who were cautious about splurging on high-priced jewelry led Tiffany & Co. to report Monday that fourth-quarter profit tumbled more than 75 percent.
/ Source: The Associated Press

Shoppers who were cautious about splurging on high-priced jewelry led Tiffany & Co. to report Monday that fourth-quarter profit tumbled more than 75 percent.

Enough people bought lower-priced items, though, that its earnings beat analysts' forecasts. Its shares rose 12 percent.

Tiffany said it believes its sales were hurt by the discounts offered by other jewelers and high end competitors. Although competition among jewelers remains intense, Tiffany still plans to maintain its prices to protect its cachet — symbolized by its famous blue box.

"We did and will continue with our full-price philosophy in order to maintain appropriate margins and, very importantly, to maintain the integrity of the Tiffany & Co. brand," Chief Financial Officer Jim Fernandez said on a conference call with analysts.

About 600 of Tiffany's U.S. employees accepted an early retirement package during the fourth quarter, which the company expects will help reduce its worldwide staff by 10 percent and save about $60 million before taxes this year.

Looking ahead, Tiffany is predicting 2009 earnings from continuing operations below Wall Street's current expectations. It expects to earn $1.50 to $1.60 per share on that basis, falling short of analysts' forecast of $1.66 per share.

Investors shrugged that off, however, sending Tiffany shares up $3.14, or 15.5 percent, to close at $23.37 Monday.

Tiffany said its earnings dropped to $31.1 million, or 25 cents per share, for the three months ended Jan. 31, down from $127.4 million, or 96 cents per share, a year ago.

Excluding costs related to job cuts and other one-time items, the retailer said quarterly earnings totaled 85 cents, better than the 80 cents expected by analysts polled by Thomson Reuters.

Sales dropped 20 percent to $841.2 million from $1.05 billion in last year's fourth quarter, but came in above the $838 million Wall Street expected. At Tiffany's flagship store on Fifth Avenue in New York, sales dropped 34 percent. The store represents 10 percent of total sales and is a popular attraction among tourists.

Sales at stores open at least one year, known as same-store sales, dropped 23 percent, excluding the impact of foreign currency exchange. Tiffany said a 33 percent drop in same-store sales in the Americas drove the decline.

Revenue in the U.S. dropped in every price range, but the declines were "somewhat smaller" in sales below $500 and larger above $50,000, said Mark Aaron, Tiffany's vice president of investor relations.

Sales of charm jewelry were strong, but engagement ring sales declined — although demand was stronger outside the Americas.

"Most of the U.S. sales decline in the quarter came from a decrease in the number of transactions, with the remainder coming from customers spending less per transaction," Aaron said.

Edward Jones analyst Matt Arnold said Tiffany may be able to boost the number of products it offers at lower prices.

"A lot of Tiffany's strength is a trade down from higher price points because consumers still want to give the 'blue box,'" Arnold said.

But he said Tiffany doesn't need to lower prices because consumers are still willing to pay for the Tiffany brand.

"This is one of the few jewelers that have a brand that means a lot. It's the reason they can expand internationally while others can't," Arnold said.

Tiffany plans to open 13 stores this year, down from 22 new stores in 2008. It will open seven in the Asia-Pacific region in addition to stores in the U.S., Canada, Mexico and Europe.

For the full fiscal year, Tiffany's profit fell to $220 million, or $1.74 per share, from $323.5 million, or $2.34 per share, a year ago. The results included an after-tax charge of $22.6 million related to the sale of its Little Switzerland business, the company noted.

Full-year sales slipped 3 percent to $2.86 billion, from $2.94 billion.

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AP Business Writer Kristen Lee contributed to this report.