UPDATE 2-Zale, Tiffany holiday sales withstand recession
1/8/02 10:21 AM
Source: Reuters
(Writes through with analyst comment, details from conference call, details from Zale Corp.; adds share price, byline)
By Ellis Mnyandu
NEW YORK, Jan 8 (Reuters) - Leading U.S. jewelers Zale and Tiffany on Tuesday reported resilient holiday sales even as consumers reined in spending on luxury goods in the recession and the aftermath of the Sept. 11 attacks.
Zale Corp., North America's largest specialty jeweler, said sales at stores open at least one year, a key indication of retail performance, rose 1.8 percent for November and December as it sorted out inventory and merchandising problems.
Tiffany & Co., which focuses on affluent consumers, said its same-store sales for the period were down 2 percent, a decline analysts said was less steep than expected as traffic picked up later in the holiday season.
The company, perhaps best known for its flagship New York store's presence in the 1961 film "Breakfast at Tiffany's," also presented a bullish outlook for the current quarter.
Both companies' shares rose on the news. Tiffany was up $2, or 6.1 percent, at $34.89 in afternoon New York Stock Exchange trade, while Zale gained $1.33, or 3.2 percent, to $42.98.
Analysts had feared that the $40 billion-plus jewelry industry would see its worst Christmas since 1991, when the U.S. economy sank into a recession in the midst of the Gulf War.
TOUGH CONDITIONS PERSIST
While those fears did not come to pass, both Zale and Tiffany said the retail environment remains difficult.
"Despite recent upward movement in consumer confidence, we think it's too early to call it a trend," Tiffany Chief Financial Officer James Fernandez said in a conference call.
The company said it sees no "meaningful improvement" in earnings until the second half of the year ending in January 2003.
Tiffany said it expects earnings for the fourth quarter ending on Jan. 31 to hit the upper end of its forecast of 49 cents to 56 cents a share, although sales should come in about 3 percent lower than a year earlier.
President and Chief Executive Michael Kowalski said higher gross margin resulting from a more profitable product sales mix, as well as ongoing expense controls, will offset sluggish sales.
The earnings forecast, however, is down from the 60 cents to 65 cents a share projected before the Sept. 11 attacks on New York and Washington. Analysts polled by research firm Thomson Financial/First Call have on average been expecting a profit of 50 cents a share.
Tiffany, known for its robin's egg blue gift boxes, said it expects full-year earnings at the higher end of its initial forecast of $1.09 to $1.16 a share, with a mid to high single-digit percentage increase for fiscal 2003.
First Call's 2003 consensus forecast is $1.18 a share, up about 8 percent from $1.09 estimated for the current year.
As consumers shy away from merchandise that costs anywhere from $10,000 to more than $25,000, Tiffany has begun offering customers lower priced items that help draw store traffic and also carry higher margins.
WR Hambrecht & Co. analyst Kristine Koerber said the merchandise shift is a good step.
SALES DROP AT TIFFANY FLAGSHIP STORE
"Given that Tiffany competes in the luxury goods arena and there's so much concern over a very difficult holiday season, I think they managed through quite well," she said. "Inventories are in good shape ... and this supports the strength of the Tiffany brand."
Tiffany said net sales for November and December fell 2 percent to $472.7 million from a year earlier.
The company's flagship store in midtown Manhattan was hit particularly hard, with sales dropping 12 percent due to reduced traffic following the Sept. 11 attacks and job losses in the financial services industry, including Wall Street.
That store is a key component of Tiffany's business as the New York region accounts for about 13 percent of the company's total sales. U.S. same-store sales were down 3 percent.
Zale, which targets a wider range of consumers than Tiffany does, said its total holiday sales rose 3.6 percent to $763.4 million.
The Dallas company, which operates more than 2,300 stores under its own name as well as Gordon's, Piercing Pagoda and Bailey Banks & Biddle, said it was able to increase market share without sacrificing operating margins.
"Our holiday sales are an indication of the progress that has been made in the company's repositioning," Chairman and Chief Executive Robert J. DiNicola said in a statement.
Zale has spent much of the past year refocusing on wedding and engagement rings and on improving the quality of its merchandise.
Copyright 2002, Reuters News Service
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