Cited: The Wall Street Journal

Friday, luxury-jewelry retailer, Tiffany & Co. stated that their second-quarter profits fell 30%. Correction, only 30%, which was less than they were expecting. Not only that, but the company saw improved results from Europe and Asia, which helped compensate for U.S. shoppers’ cutbacks.

Outside of Japan, Asian comparable sales were up 5%, with continued strength in Australia and China as the company also saw solid improvements in markets including Hong Kong, Taiwan and Singapore, spokesman Mark Aaron said on a conference call with analysts. He said Europe “also is looking up” with new stores the company opened last year in countries from the U.K. to Spain generating “excellent initial results.”

Even the company’s top U.S. market showed some positive signs. While it still lagged other markets as the number of transactions and the average transaction amount declined, the company has seen a small improvement in the conversion rate of customers who end up making a purchase after visiting a store “for the first time in quite a while,” Aaron said.

“The tide may be slowing turning in our favor,” Aaron said.

The company Tiffany & Co. also said sales trends in August are meeting its expectations and many of its stores are seeing either a slower rate of sales declines or modest growth compared with the prior two quarters. Luxury retailer Saks Inc., in posting a better-than-expected result, also said earlier this month that it appears that the decline in shopping frequency and spending may be “leveling off.”

“We believe the worst is behind” Tiffany, said analyst Stacey Widlitz of Pali Capital in a note. “There has been a major shakeout in the jewelry business with a significant amount of store closures. (Tiffany) will certainly be a beneficiary and we expect market share gains to translate into strong sales growth in the U.S.”

Tiffany shares jumped 8,8% to $36.72 in early trading. Before Friday, the stock had already surged 43% this year, outpacing the 33% gain of the S&P Retail Index (RLX 370.17, -0.07, -0.02%) .

Tiffany has introduced Tiffany Keys collection, ranging in price from $150 in sterling silver to $15,000 in platinum and diamonds to spur demand after sales of items priced above $50,000 were hurt the most after the financial markets’ meltdown led to job cuts and reduced bonuses in its top markets such as New York, which also was hurt by reduced tourism travel.

Tiffany has lowered management incentive compensation, lowered frequency of catalog mailings and has opened a smaller store to test demand while announcing plans to shut its Iridesse pearl jewelry chain.

Luxury retailers from Saks  (SKS 6.39, +0.05, +0.79%) and Macy’s Inc.’s  (M 15.82, +0.17, +1.09%) Bloomingdale’s to Nordstrom Inc. (JWN 28.60, +0.15, +0.53%) and privately-held Neiman Marcus have been among the worst hit in the recession. Tiffany’s rival Fortunoff filed for bankruptcy protection in February and has liquidated its stores.

Net income fell to $56.8 million, or 46 cents a share, from $80.8 million, or 63 cents a share, a year earlier. The latest quarter’s results included a 7-cent gain related to a loan recovery and tax-reserve adjustments, Tiffany said. Sales in the quarter ended July 31 dropped 16% to $612.5 million and would have fallen 14% excluding the impact of currency translations.

It raised its profit forecast for the year to $1.65 to $1.75 a share from a previous projection of as much as $1.60 with sales expected to decline about 10%. The company, however, cautioned on the call that its sales projection doesn’t assume “meaningful changes in the economic conditions and said it’s not changed its sales and profit expectations for the second half of the year.

Analysts, on average, estimated Tiffany would earn 33 cents a share in the second quarter and $1.58 for the year, according to FactSet.

Tiffany’s second-quarter sales at stores open at least a year declined 16%, led by a 27% plunge in U.S. same-store sales. The company’s New York flagship sales, about 10% of its total business, tumbled 30%.

European sales have dropped 10%, with Asia-Pacific comparable sales falling 2%, including a 1% drop in Japan. Hit by increased product cost, the quarter’s gross margin slimmed to 55.1% from 57.8%. After the company reduced staffing and marketing costs, its selling, general, and administrative expenses fell 14%.

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My Take: There are some industries that suffer and some that thrive in economic recession; for reason, the less money in people’s pockets will still find their way into the cash drawers of cheap bars, movie theaters, and cosmetic companies. So is this news about Tiffany’s surprising?

More like uplifting. Everyone thought the company should be doing far worse, but it’s limping up to a walking pace. Perhaps there is a light at the end of the tunnel?

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