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Tiffany Profit Tops Estimates Amid Tepid Sales in Americas

Aug. 27 (Bloomberg) -- Bloomberg senior markets correspondent Julie Hyman reviews second-quarter results from Tiffany & Co. as profit topped estimates on a decline in product costs, coupled with an increase in prices and looks at the strength of the luxury consumer. She speaks on Bloomberg Television's "In The Loop."

Tiffany & Co., (TIF) the world’s second-largest luxury jewelry retailer, reported second-quarter profit that topped analysts’ estimates as price increases and declining product costs helped counter tepid sales in the Americas.

Net income in the quarter ended July 31 rose 16 percent to $106.8 million, or 83 cents a share, from $91.8 million, or 72 cents, a year earlier, the New York-based company said today in a statement. Analysts projected 74 cents, the average of 22 estimates compiled by Bloomberg.

A drop in costs for precious materials helped boost profit, as did Tiffany’s decision to raise prices after holding them steady last year. While wealthier customers happily paid up for the pricier baubles, less well-heeled shoppers balked, and sales in the Americas fell short of estimates. Tiffany’s mid-priced fashion jewelry also faced increasing competition from such designer jewelers as David Yurman and Ippolita.

“It’s lower silver costs they are benefiting from,” Brian Yarbrough, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview today. The sales deceleration was “concerning,” he said.

Gross margin, or earnings left after subtracting the cost of goods, widened to 57.5 percent of sales compared with 56.3 percent a year earlier.

The shares fell 1 percent to $80.82 at the close in New York. The stock has gained 41 percent this year, compared with a 14 percent increase for the Standard & Poor’s 500 Index.

Sales Miss

Tiffany joined retailers from No. 1 discounter Wal-Mart Stores Inc. to luxury chains such as Nordstrom Inc. (JWN) in posting sales that missed estimates. Consumers have switched their spending from personal discretionary goods like apparel, handbags and jewelry to replacing old cars and home-related merchandise as the housing market rebounds.

Revenue advanced 4.4 percent to $925.9 million at Tiffany. Analysts projected $942.4 million.

Sales at stores open longer than 12 months in the Americas were unchanged, after a 3 percent increase in the first quarter.

“That is pretty weak, that deceleration from the first quarter,” said Yarbrough, who recommends holding the shares.

While sales rose in dollar terms in the Americas after it increased prices and the highest-priced jewelry sold well, Tiffany saw declines in unit sales in the region, particularly in moderately priced fashion jewelry, Mark Aaron, a company spokesman, said on a conference call with analysts.

Amid increased competition from Yurman and Ippolita, Tiffany said it expects fashion jewelry to lag its other categories for the rest of the year even though it is adding new products, including a redesigned Atlas collection.

The company raised its annual profit forecast to a range of $3.50 to $3.60 a share, excluding some items, from $3.43 to $3.53. Analysts estimated $3.53, on average.

Cie. Financiere Richemont SA is the world’s largest luxury jewelry maker.

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To contact the reporter on this story: Cotten Timberlake in 東京 at ctimberlake@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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