Amid a weak retail environment, Tiffany & Company (TIF), the manufacturer and retailer of fine jewelry, reported better-than-expected second quarter 2009 results. This came on the back of cost-cutting initiatives, inventory management and decelerating pace in sales decline.

Selling, general and administrative costs fell 14% in the quarter due to a decline in marketing and staff expenses as well as other variable costs related to sales. Moreover, the lower effective tax rate (26.7% in the quarter versus 36.9% in the last year quarter) also benefited EPS.

Net sales for the quarter under review dipped 16% to $612.5 million, following a decline of 22% in the first quarter of 2009, disclosing some signs of revival with renewed demand for jewelry. Total comparable sales fell 17% after declining 24% in the previous quarter. Comps had increased 3% in the second quarter of 2008.

Tiffany’s quarterly earnings of 39 cents a share, excluding one-time items, surpassed the Zacks Consensus Estimate of 33 cents, but fell 39% year over year from 64 cents delivered in the prior-year quarter. On a reported basis, EPS came in at 46 cents, down 27% from 63 cents reported in the year-ago quarter.

Tiffany raised its earnings outlook based on improved results. Management now expects EPS for fiscal year 2009 in the range of $1.65 to $1.75, up from $1.50 to $1.60 predicted earlier. The company now anticipates total net sales to decline by 10%, down from 11% forecasted previously.

By geographic segment, sales in the Americas slid 23% to $324.9 million, whereas comps fell 26%; sales in the Asia-Pacific region dipped 1% to $211.9 million, and comps declined 2%; sales in Europe dropped 4% to $68.3 million, and comps were down 10%.

Excluding Japan, the Asia-Pacific region experienced sales growth of 6% (up 14% in constant currencies) due to sustained growth in Australia and China, and improvements registered in markets like Hong Kong, Taiwan and Singapore. In constant currencies, sales increased 13% in Europe and comps were up 5%. The geographical diversification has helped Tiffany post better-than-expected results.

For fiscal year 2009, management expects a mid-teens percentage fall in the Americas and a low single-digit decline in the Asia-Pacific region and in Europe.

Tiffany has been facing a sharp decline in the demand for luxury jewelry above $50,000, whereas a new collection of lower-priced fashion jewelry ranging from $150 to $15,000 fared better.

The company ended the quarter with cash and cash equivalents of $333.6 million, and long-term debt of $711 million, representing a debt-to-capitalization ratio of 30%. Management expects capex to be $100 million for the full year, and free cash flow of $400 million.
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