Overseas Demand Polishes Tiffany

Asia, Europe Strength Offsets Softness in U.S.; Sales Outlook Cautious

Tiffany & Co's fiscal-first-quarter profit rose 19% as higher demand in Europe and Asia helped make up for soft sales in the U.S.

In addition, the New York jeweler raised its full-year earnings outlook while noting it maintains "a cautious outlook for U.S. sales" and doesn't expect an improvement until later this year.

Tiffany also said it plans to introduce a "new, smaller store format" in the U.S. later this year, in addition to its plans to open about 24 new stores world-wide.

Sales at stores open at least a year rose 21% in Europe and 15% in the AsiaPacific region, driven by demand in areas from London and Italy to Hong Kong and China. Adjusted for currency effects, same-store sales rose 12% in Europe and 4% in the Asia-Pacific region.

Overseas sales helped offset flat sales in the U.S., the company's larg market, where a slowing economy' curtailed spending on jewelry , other discretionary items.

International shoppers taking vantage of the weak dollar also hel) Tiffany'S domestic sales. The com ny's New York flagship store saw a: jump in same-store sales, driven by demand from foreign tourists. Meanwhile, sales at branch stores declined 4% as the company experienced soft sales of items below $500.

Sales in the quarter ended April have been driven by engagement rings in the U.S., silver jewelry outside of U.S. or designer collections such as Elsa Peretti jewelry.

Chief Executive Michael J. Kowalski said strong sales growth despite "only modest growth in the U.S. due to challenging conditions reflects the benefit of globally diversified distribution."

"Tiffany is becoming a truly global brand," said Pali Research analyst Stacey Widlitz, who has a "buy" rating on
the stock. "The strength in international and the size of it is enough to offset however long the U.S. consumer weakness is lasting. International consumers love this brand."

World-wide sales so far in May have met the company's expectations, Tiffany said. While U.S. same-store sales for the year are expected to rise, the company said it expects second quarter U.S. sales to decline, which will pressure profit in that period.

Tiffany raised its full-year outlook it boosted in March an additional five cents and now expects earnings of $2.80 to $2.90 a share, maintaining its forecast for net sales growth of about 10%. The latest mean estimate of analysts surveyed by Thomson Reuters was for earnings of $2.73 a share on 10% sales growth to $3.23 billion.

By: Andrie Cheng & Donna Kardos
Wall Street Journal; May 31-June 1, 2008