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Wednesday May 16 5:47 PM ET
Tiffany Profits Up, Sees 2nd Half in Line

By Monica Summers

NEW YORK (Reuters) - Luxury retailer Tiffany & Co. (NYSE:TIF - news) said Wednesday its first-quarter profits rose slightly despite a 3 percent dip in sales, and profits for the rest of the year would be in line to slightly above estimates if U.S. consumer confidence (news - web sites) and spending improve.

Despite the mixed results, analysts said the New York-based retailer is holding its ground against other retailers, given the current condition of the U.S. economy and retail environment.

``In general, I would say they fared very well in a tough environment,'' said Dorothy Lakner, retail analyst with CIBC World Markets Corp.

Tiffany's first-quarter net income was $30.8 million, or 20 cents a share, compared with a profit of $30.4 million, or 20 cents a share, in the year-ago quarter. According to First Call, analysts had been expecting a profit in the range of 16 cents to 21 cents a share, with a mean estimate of 18 cents.

First-quarter sales fell 3 percent to $336.4 million from $345.1 million a year ago, while same-store sales fell 8 percent. In last year's first quarter, same-store sales rose a stellar 28 percent, creating another tough comparison.

Lakner said that considering Tiffany's comparable sales were down 8 percent, a bigger drop than both the company and analysts had expected, its earnings per share topped analysts' consensus expectations by 2 cents. She said this was testimony to the strength of the firm's management.

``Despite the lackluster sales trends, expense control clearly came into play here,'' Lakner said. ``That suggests that if we can say we've seen the worst, then there's certainly light at the end of the tunnel.''

Tiffany shares rose 39 cents, or 1.2 percent, to close at $34.08 on the New York Stock Exchange (news - web sites). Over the past year, Tiffany has underperformed the Standard & Poor's retail (^RLX - news) index by 11 percent. The stock's 52-week range is $25.12 to $45.37.

OUTLOOK STABLE FOR REMAINDER OF THE YEAR

The retailer said it expects sales at U.S. stores open at least a year will rise in the mid to high-single digits in the second half of the year. Sales in the current quarter are already showing an upward trend despite a slowdown in U.S. consumer spending.

``We are only two weeks into the second quarter and initial U.S. comparable store sales have improved slightly from the first quarter, but remain below the prior year,'' President and Chief Executive Michael Kowalski said in a statement.

``Our outlook continues to call for challenging external conditions in the coming months and we will continue to face a tough comparison to last year,'' he said.

Still, Kowalski said earnings for the second quarter could approach last year's levels. In the year-ago quarter, Tiffany posted a per-share profit of 25 cents. Analysts polled by research firm Thomson Financial/First Call are expecting Tiffany to post a second-quarter profit in the range of 22 cents to 27 cents, with a mean estimate of 25 cents a share.

Tiffany Chief Financial Officer James Fernandez said during the company's conference call with analysts on Wednesday that third and fourth-quarter profits will also be in line to slightly above analysts' average estimates.

Third-quarter earnings per share could be in the range of 25 to 27 cents, while earnings for the fourth quarter could be in the 65 to 67 cents range. The First Call consensus estimates are 26 cents and 65 cents a share for the third and fourth quarters, respectively.

``Assumptions are obviously tied to improvements in the external environment and consumer confidence, as well as to easier comparisons later in the year,'' Fernandez said.

RESULTS HOLD UP AGAINST TOUGH 2000 COMPARISONS

Analysts noted that Tiffany turned in a stellar performance in last year's first quarter, when consumers savored the expendable income they garnered from the technology boom and spent well above average.

``You have to keep in to perspective the phenomenal business the company did the year before,'' CIBC's Lakner said. ``Their first-quarter earnings last year were up almost 90 percent, and a lot of companies have tough comparisons because, in general, 2000 was a pretty good year.''

``But for (Tiffany) in particular, it was a pretty onerous comparison,'' Lakner said of the recent results.

``These results are not consistent with the strong growth that Tiffany has achieved for a number of years, including an 88 percent net earnings increase in 2000's first quarter,'' Tiffany's Kowalski said. ``However, they were, not surprisingly, impacted by external conditions that affected customers' average spending levels and that are in sharp contrast to the robust retail environment of a year ago,'' he added.

The U.S. retail environment has proved a tough one for most luxury retailers, as consumers have not only trimmed their discretionary spending habits, but have also turned their focus to discount retailers during these lean times.

Zale Corp., the top U.S. specialty jewelry retailer, on Tuesday reported a staggering 50 percent drop in third-quarter profits and forecast flat earnings for its next fiscal year due to slower consumer spending and inventory problems.

-- Anonymous, May 16, 2001