Harry Winston Diamond Corp. (HWD) reported fiscal 2010 fourth-quarter results after the closing bell on Thursday. The company posted a narrower net loss of $3.6 million, or 4 cents per share, compared to a net loss of $73.0 million, or $1.19 per share in the year-ago quarter, which included an impairment charge of $93.8 million. However, the result came in behind the Zacks Consensus Estimate for a profit of 10 cents per share.

Toronto-based Harry Winston is a specialist diamond enterprise with assets in the mining and retail segments of the diamond industry. The company supplies rough diamonds globally from production received from its 40% stake in the Diavik diamond mine in Lac de Gras, Canada, which is operated by mining major Rio Tinto Plc (RTP). Harry Winston also retails fine jewelry and watches through its wholly-owned subsidiary, Harry Winston Inc. with outlets in the U.S., Europe and Asia.

Quarter in Detail

Harry Winston’s quarterly sales grew 12.9% to $133.7 million, from $118.4 million in the year-ago period. The growth was primarily driven by the Mining segment, which recorded a 24.2% expansion in sales to $63.5 million due to a 12% increase in rough diamond prices coupled with an 11% growth in volume of carats sold. The company also witnessed a 6.6% year-over-year increase in the Retail segment to $70.2 million as growth in Asia and the U.S. was partially offset by sluggish performance in Europe.

Harry Winston’s gross margin declined to 28.0%, from 41.8% in the year-ago period, primarily due to reduced carat production and unfavorable product mix. Selling, general and administrative expenses rose 2.7% to $40.5 million mainly on account of higher severance costs. Accordingly, Harry Winston posted an operating loss of $3.1 million, compared to an operating profit of $10.1 million in the year-ago quarter.

Harry Winston ended the quarter with cash, cash equivalents and cash reserves of $63.0 million, compared to $46.9 million in the prior-year quarter. During fiscal 2010, the company utilized $138.7 million towards debt repayment and $53.9 million towards capital expenditure.

Outlook and Zacks Consensus

Moving forward, Harry Winston anticipates approximately 7.8 million carats to be mined in the Diavik diamond mine during calendar year 2010. On the retail segment, the company expects continued improvement in the luxury jewelry market primarily driven by strong demand in Asia and gradual recovery in the U.S and European markets.

The Zacks Consensus Estimate on Harry Winston’s earnings for the fiscal year ending January 2011 is currently pegged at a penny per share, which moved down by 8 cents in just the past week. For the next fiscal year, the Zacks Consensus Estimate presently stands at a profit of 14 cents per share, which dipped by a penny over the past week.
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