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Tiffany Profit Falls on Sale of Little Switzerland, but Sales Surge

Upscale jeweler Tiffany reported lower second-quarter net profit Thursday on charges related to the pending sale of its Little Switzerland business, despite sales growth in some markets.

But earnings from continuing operations easily topped Wall Street estimates, and the company boosted its fiscal 2007 earnings outlook, citing a "reasonably favorable retail environment."

Tiffany increased its per-share earnings outlook to a range of $2.44 to $2.49 from $2.10 to $2.15, citing strong sales as rich consumers continue to spend despite economic concerns, a rocky stock market and a tighter credit environment. Such concerns have led numerous U.S. retailers to take a cautious view or cut their earnings outlook for the rest of the year.

"While the largest percentage growth was in sales over $50,000, we saw growth in all strata we measure, including those under $500," Mark Aaron, vice president of investor relations, said during a conference call. Quarterly sales rose 19 percent to $662.6 million, boosted by strength in the United States and most international markets except Japan. Revenue was also boosted by its wholesale diamonds business and strong sales of engagement rings, diamonds and silver jewelry.

Sales at its New York City flagship store surged 31 percent, reflecting strong sales to tourists, Tiffany said.

"(Tiffany) is not immune to market turmoil nor is it recession-proof, but we believe its focus on higher income consumers as well as its global diversification offers some shelter from current conditions," CIBC World Markets analyst Dorothy Lakner wrote in a research note.

Earnings, Future Plans

Net profit in the quarter ended July 31 was $36.97 million or 26 cents per share, compared with $41.1 million or 29 cents per share a year earlier.

Earnings from continuing operations were 45 cents a share, compared with 32 cents a share in the year-earlier period.

Analysts, on average, had expected 35 cents a share, according to Reuters Estimates.

The company took a per-share charge of 17 cents in the quarter related to the pending sale of the Little Switzerland chain of stores to NXP Corp.

Tiffany also said it sold its Tokyo flagship store's land and building for $328 million and expects to gain about 47 cents per share on the transaction in the third quarter.

In a statement, Chief Executive Michael Kowalski said he expects about 14 percent sales growth in the fiscal year and per-share earnings from continuing operations between $2.64 and $2.69, including the gain from the Tokyo store sale.

Tiffany said August sales were in line with expectations, which "we think offers some reassurance to investors worried about what effect stock market turmoil would have on (its) business," Lakner wrote.

The company said it expects company-operated stores to increase by about 11 percent for the year, with seven stores in in the United States and 11 stores internationally.

Tiffany also said its first eyewear collection, which Luxottica will make for the jeweler, will be launched in 2008.

Tiffany shares were up 1.1 percent to $48.67 on the New York Stock Exchange.

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