Tiffany Earnings Drop 26%

"While the US sales increase was geographically broad-based, we had to cope with softer demand in the early part of the quarter and faced a tough comparison with 2003's third quarter," Michael J. Kowalski, chairman/CEO of the jewelry purveyor, said in a conference call Thursday morning. "In Japan, we are continuing to reposition our product assortment and support new product introductions.

"We are seeing some traction from these initiatives, but results were still below our expectations, and it would be premature to draw conclusions," Kowalski continued.

Net sales actually increased by 7% for Q3, to more than $461.1 million from $430.1 million. On a constant-exchange-rate basis, net sales and comparable store sales rose 5% and 1% respectively. Net earnings were just over $20.8 million, or $0.14 per diluted share, down 26% from $28.03 million, or $0.19 a share a year ago.

For the nine months ended October 31, net sales were up 10% to just under $1.4 billion, compared to $1.27 billion a year earlier, and comparable store sales rose 8%. Net earnings were $97.7 million, or $0.66 per diluted share, compared to $104.04 million, or $0.71 per share a year earlier.

"These disappointing results don't affect our long-term strategic direction," Kowalski said during the conference call. "We're excited about initial customer reactions to the range of new products we've introduced this year, and are equally encouraged by the early results from our new stores, and we expect a healthy sales increase in the holiday season in the US.

"Nonetheless, we are slightly moderating our previous estimates to mid-single-digit comparable US store sales growth to correspond with the pace of the Q3," he continued.

The results were in line with analysts' predictions, most of which said the numbers would be, at best, flat. "Recall that management indicated on August 12 that earnings per share for Q3 were expected to be essentially flat year-over-year," says Lehman Brothers Alan M. Rifkin.

But despite continued caution relating to the company's operations in Japan, Rifkin says Tiffany has a "positive long-term outlook. We believe Tiffany is one of the most highly regarding companies under our coverage. Tiffany possesses one of the strongest brand identities in all of retailing, and remains a legitimate 18% long-term growth company."

The Q3 conference call took place before the market opened on Thursday. The company's stock fell by $2.24 to $29.89 during the day's trading.