Tiffany Earnings Up 41%

By the numbers, Tiffany's net sales rose 10% for the year to $2.2 billion, and net earnings were up by 41% to just over $304 million, or $2.05 per undiluted share. The earnings picture was admittedly aided by the company's sale of its equity stake in Aber Diamond Corp., which impacted both Q4 and full-year earnings to the tune of a pre-tax gain of nearly $193.6 million. Comparable store sales rose 7% for the year.

By itself, Q4 generated a net sales gain of 11% to just over $810.1 million, and a net earnings gain of 96% to just over $217 million, most of which was the Aber Diamond sell-off. Worldwide comparable store sales were up by 5% for the quarter. Excluding the same-store sales were up by 9% and 3%, respectively, according to company officials.

"Our operating performance in 2004 did not meet the objectives that we set at the start of the year," Tiffany chairman/CEO Michael J. Kowalski told analysts yesterday. "Although we achieved strong comparable store and total sales growth in the US and certain international markets, we did not achieve the results we were looking for in Japan."

Tiffany reported yesterday that comparable store sales in Japan were off by 3% for Q4 and 2% for the full year. Factoring in the effect of translating local currency denominated sales into US dollars, comparable store sales for the two periods were off 7% and 8% respectively.

As far as gross margin (gross profit as a percentage of net sales), which Kowalski said was hindered by "sharply higher costs for precious metals and diamonds, as well as the geographic and product sales mix," it was 57.1% in Q4 compared to 59.5% a year earlier. For the full year the gross margin was 56%, down from 57.9%.

"Looking beyond 2004, Tiffany has maintained a long-term approach by expanding its global reach with new stores and reaching more customers with marketing messages focused on both a wide range of newly introduced designs as well as our classic product offerings," Kowalski told analysts.

"For 2005, we believe the company has the ability to achieve 8% to 10% net sales growth and net earnings in a range of $1.45 to $1.55 per diluted share," he predicted. "This confirms the guidance we provided on January 7th and includes the assumptions of opening six to 10 company-operated stores, comparable store percentage sales growth in a mid-single-digit range in the US and a low-single-digit range in local currency in Japan and as slight increase in gross margin.

"Beyond 2005, we expect long-term earnings per share growth of at least 12% annually over the following three years," he told analysts. "That assumes opening six to 10 company owned stores annually, some operating margin expansion, improvement in our return on assets and continued investments in longer-term growth opportunities such as the expansion of specialty retail concepts and development of the Tiffany & Co. brand in China."