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Tiffany Cuts Earnings on Japan Store Closures

Tiffany is reducing its first-quarter earnings forecast as it deals with some store closings and limited hours in Japan, in the wake of the earthquake and tsunami there.

Tiffany Gift Box
Photo By: minxlj
Tiffany Gift Box

The dimmer outlook provided on Monday came as strong holiday demand and healthy results both domestically and abroad helped push the company's fourth-quarter net income up 29 percent.

Tiffany is one of the U.S. retailers most exposed to Japan's economy and appetite for luxury goods. Of Tiffany's 233 stores, almost a quarter of them — 56 — are in Japan. It's also one of the first companies to specify the business impact of the quake.

The jewelry maker, known for its turquoise box, now expects first-quarter earnings of about 57 cents per share, down from a previous forecast of 62 cents per share.

Analysts surveyed by FactSet predicted lower earnings of 55 cents per share.

The company's stores in the Kanto and Tohoku regions, which make up more than half of its Japanese sales, were closed or had reduced hours after the disasters. Physical damage was limited to only a few stores, Tiffany said.

The retailer expects Japanese sales, 18 percent of its business in 2010, will drop 15 percent in the first quarter.

For the full year, the company anticipates adjusted earnings of $3.35 to $3.45 per share. Wall Street forecasts $3.70 per share.

Tiffany predicts 2011 worldwide sales will climb 12-14 percent, with Japanese sales facing a mid-single-digit percent decline. Fourth-quarter net income increased to $181.2 million, or $1.41 per share, for the period ended Jan. 31. That compares with $140.4 million, or $1.09 per share, a year ago.

Excluding a charge tied to moving its New York headquarters staff, earnings from continuing operations were $1.44 per share.

This surpassed the $1.39 per share that analysts expected. Its stock added $2.93, or 5.1 percent, to close at $60.22 on Monday. Over the last year, the shares have traded in a range of $35.81 to $65.76.

Revenue improved to $1.1 billion from $981.4 million, matching expectations. Tiffany reported sales increased across all regions and said new products, such as its yellow diamond collection, helped its performance.

Chief Financial Officer James Fernandez said during a conference call that the jeweler recently raised some of its retail prices in many product categories due to higher costs. He indicated that the company may increase prices later in the year if deemed necessary.

Fernandez said shoppers did not appear to be resistant to the price hikes and seemed to understand Tiffany's need to address rising costs.

In the fourth quarter, worldwide revenue at stores open at least a year climbed 9 percent on a constant exchange rate basis. Gains were reported across all geographic regions.

This figure is a key indicator of a retailer's health because it excludes revenue from stores opened or closed during the year.

Tiffany's full-year earnings climbed 39 percent to $368.4 million, or $2.87 per share, from $264.8 million, or $2.11 per share, a year ago.

Annual revenue rose 14 percent to $3.09 billion from $2.71 billion. Get real-time Tiffany quotes here.

Sales of items under $500 dropped in the U.S. Many other product categories, including fine and fashion gold jewelry, designer jewelry and engagement rings, increased.

Luxury spending has been making a comeback as economic conditions improve; the affluent seem to be recovering from the recession faster than others as the stock market rebounds.

Worldwide revenue at stores open at least a year rose 8 percent on a constant exchange rate basis.

Total sales in Japan climbed 7 percent in 2010 due to the stronger yen, while revenue at its stores open at least a year fell 4 percent on a constant exchange rate basis.