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Rapaport TradeWire March 28, 2014
Mar 27, 2014 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Mar. 28, 2014
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Polished markets optimistic but liquidity under pressure due to tight bank credit and high rough prices. Demand for large diamonds robust as Basel shows begin. Rough trading stable ahead of next week’s De Beers sight. Tiffany & Co. 4Q sales +5% to $1.3B, loss of $104M vs. profit of $180M a year ago due to $480M Swatch arbitration. Signet Jewelers 4Q revenue +3% to $1.6B, profit +2% to $175M. Chow Sang Sang 2013 revenue +38% to $3.2B, profit +24% to $158M. The Diamond Show opens March 27 at Markthalle in Basel.
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| RapNet Data: Mar. 27 |
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| Diamonds |
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1,052,044 |
| Value |
$7,131,314,020 |
| Carats |
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1,167,209 |
| Average Discount |
-26.44% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Namibia’s diamonds fetch $450 to $700 per carat because they are of high-quality, spotless and they don’t disintegrate. That compares with about $150 per carat for Botswana, less than $100 for Angola and below $50 for Zimbabwe. Ninety-eight percent of Namibia's stones are of gem-quality.
Kennedy Hamutenya | Namibia Diamond Commissioner
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Careers@Rapaport
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The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants and entry-level positions for our offices in New York, Antwerp, Mumbai, Dubai and Shanghai. View jobs now.
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RETAIL & WHOLESALE
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Signet Lands 'Top Pick' at Sterne Agee
Signet Jeweler's revenue rose 3.4% year on year to $1.56 billion during the fourth quarter that ended on February 1. Comparable-store sales increased 4.3% and cost of sales rose 4.4% $915 million. Signet's profit improved 1.7% to $175 million or $2.18 per diluted share. Fiscal year sales rose 5.7% to $4.21 billion, cost of sales jumped 9.9% to $2.63 billion and net income improved 2.2% to $368 million or $4.56 per diluted share.
U.S. division sales improved 3.5% to $1.29 billion in the fourth quarter, while same-store sales rose 5%. The strongest performance came from bridal, colored diamonds, fashion jewelry, beads and watches. The average merchandise transaction value increased at Kay, but it declined at Jared. Signet's ecommerce sales in the U.S. surged 10.9% to $61.9 million.
In the U.K., sales as reported in dollars improved 1.4% to $272.2 million, but same-store sales jumped 5.7% in the fourth quarter. Sales performance was driven by bridal and fashion diamond jewelry, fashion and prestige watches, exclusive of Rolex. The average merchandise transaction value remained consistent year to year at H.Samuel, however, the average value fell slightly at Ernest Jones. Online sales in the U.K. surged 32.6% to $17.1 million.
Signet's board declared an increased quarterly dividend of 18 cents per share, payable on May 28.
Sterne Agee analyst Ike Boruchow raised the price target $5 for Signet to $125 per share, maintained a rating of ''Buy'' and increased fiscal 2015 earnings per share (EPS) to between $5.12 and $5.70 from $5.10 and $5.55. Gross margin pressure was alleviated somewhat amid solid top-line trends, Boruchow wrote. After taking into account the significant accretion potential from the pending Zale merger, Signet remains a most compelling story and a top pick for Sterne Agee.
Signet's U.K. performance was the best in five years, in local currency, and continues to benefit from branded/exclusive merchandise, which grew 23% for the year, Boruchow said. Signet should receive a greater benefits from lower gold costs this year, partially offset by some hedge losses, a headwind from lower recovery value of trade-in merchandise and increased bad debt expense from the credit portfolio, Boruchow wrote. The bad debt ratio continues to increase modestly due to customers carrying higher balances, but this is more than offset by increased interest income.
''Lastly, we'd note that although the company was somewhat more promotional than expected in quarter-four, management does not expect to be meaningfully more promotional going forward,'' he said. Sterne Agee believes Signet can achieve 2017 EPS of about $6.50, independent of the Zale merger, and Zale can contribute about $2.75 more, once its operations are synergized. ''While management has identified $100 million in clear synergy opportunities, this does not include $22 million of cost savings when Zale changes credit providers in late 2015 - and management commented on the call today that they believe they can identify further synergies once the deal closes,'' Boruchow wrote.
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Chow Sang Sang Profit +24%
Chow Sang Sang Holdings International reported that its revenue rose 38% year on year to $3.24 billion (HKD 25.14 billion) in the fiscal year that ended on December 31. Sales were driven by strong consumer purchasing power in Hong Kong and Macau, which accounted for 79% of the group's total sales. However, the group observed that sales in Mainland China were weaker due to a slower economy, credit tightening and the anti-corruption drive ordered by the new administration in Beijing, which impacted the luxury market. Company profit increased 24% year on year to $157.7 million.
During the year, Chow Sang Sang continued to expand its sales network of jewelry shops in Mainland China, Hong Kong, Macau and Taiwan. The group's precious metal wholesale operation as well as its securities and futures brokerage each made small contributions to overall profit. Chow Sang Sang’s jewelry retail sales rose 34% to $2.57 billion.
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Tiffany & Co.'s Profit -56%
Tiffany & Co.'s worldwide sales rose 5% year on year to $1.298 billion and same-store sales improved 2% for the fourth quarter that ended on January 31. The retailer's cost of sales increased 1.6% to $513 million; however, Tiffany & Co. recorded an arbitration expense of $480 million with Swatch, which led to reporting a quarterly loss of $104 million compared with earnings of $180 million one year ago. For the retailer's fiscal year, revenue increased 6.2% year on year to $4.031 billion, comparable-store sales increased 3%, cost of sales rose 3.7% to $1.691 billion and profit slipped 56.4% to $181 million or $1.41 per share.
During the fourth quarter, which included the all-important Christmas season, comparable-store sales on a constant exchange-rate-basis and by region were strongest in Japan, where they improved 8%, followed by an increase of 7% in the Americas, 4% in Asia-Pacific and 2% in Europe.
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Movado's Profit -11%
Movado Group's net sales increased 7% year on year to $132.3 million for the fourth quarter that ended on January 31, as measured by generally accepted accounting principles (GAAP). Cost of sales rose 3.4% to $63 million. Net income attributed to the Movado Group fell 9.2% year on year to $7.2 million or 28 cents per share. Movado recorded a pre-tax charge of $8.3 million, or 20 cents per diluted share, in connection with reducing the presence of ESQ Movado, while expanding the namesake brand in certain retail doors.
For the full fiscal year, on a GAAP basis, net sales improved 12.8% to $570.3 million, while cost of sales increased 16.4% to $265 million. Net income for the group fell 10.9% to $50.9 million or $1.97 per share. Looking ahead, Movado anticipates fiscal 2015 net sales to increase almost 11% to $640 million on a non-GAAP basis, with gross margin percent unchanged and net income of approximately $64 million or $2.44 per diluted share.
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Charles & Colvard Reports a Loss
Charles & Colvard reported that its revenue improved 26.9% year on year to $28.49 million for the fiscal year that ended on December 31. Total costs and expenses jumped 35.5% to $30.07 million, leading to a net loss of $1.29 million compared with profit of $4.38 million one year earlier. During the year, loose jewel sales increased 23% to $18.5 million and finished jewelry sales increased 34% to $10 million. The company’s wholesale business increased 23% to $25.6 million, while its direct-to-consumer businesses jumped 78% to $2.9 million. International sales rose 40% to $7.8 million.
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Christie's NY Jewels Sale Targets $50M
Christie’s New York will hold its spring sale of magnificent jewels on April 16, offering more than 250 jewels in a two-session sale at Rockefeller Center. The auction house expects to achieve a sale total of more than $50 million. Christie's will offer important colorless and colored diamonds, including a pair (22.60-carat and 22.31-carat) of circular-cut D, internally flawless diamond ear pendants with a presale estimate of $7 million to $10 million.
A 40.43-carat, D, potentially flawless oval-cut diamond ring, with a presale estimate of $5.8 million to $7.8 million, and a 50.05-carat, D, flawless Briolette-cut diamond, with a presale estimate of $5.5 million to $7.5 million, round out the top lots. Christie’s will also present more than 60 signed jewels by Suzanne Belperron, René Boivin, Bulgari, Cartier, Tiffany & Co., Van Cleef & Arpels, David Webb and Harry Winston, among others.
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Blue Nile Debuts Designer Collective
Blue Nile launched a new measure, the Blue Nile Designer Collective, to showcase jewelry from established designers and emerging talent. The assortment of fine jewelry includes earrings, pendants and bracelets in the price range of $55 to $6,000. The Designer Collective offers shoppers a more bespoke product assortment. The designers include Anne Sportun, Bree Richey, Denise James and Robert Leser. Additionally, Designer Collective is an extension of Blue Nile's partnership with designers already on board, such as Monique Lhuillier Fine Jewelry, a curated collection of engagement rings and wedding bands.
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Alex & Ani's Online Sales Surge
Omnichannel solutions provider, eBay Enterprise®, a subsidiary of eBay Inc., said it drove sales much higher for Alex and Ani through Facebook ads, achieving $1.6 million just during the Thanksgiving Day through CyberMonday period in 2013. When comparing the performance of Facebook ads for the previous six months, before and after launching, Alex and Ani recorded an 80% return on investment with eBay Enterprise, while revenue surged 4,388%. In addition, the average order value jumped 434% to more than $75, according to eBay Enterprise.
To achieve these rates, eBay Enterprise partnered with Kenshoo Social, an advanced technology platform, to optimize Alex and Ani’s targeted social marketing campaign in addition to leveraging several eBay commerce solutions already in place. Alex and Ani had deployed Magento Enterprise Edition to customize and extend its ecommerce efforts, such as Marketing Solutions programs Affiliate, Search and Paid Social to reach its revenue targets.
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De Beers, Meierotto Receive Trademarks
The U.S. Patent & Trademark Office (USPTOP) assigned the trademark ''Imaginary Nature'' to De Beers Diamond Jewellers Ltd. of the U.K. on March 11 with the registration number 4496968. De Beers requested the trademark on January 7, 2013. ''Imaginary Nature'' applies to retail and wholesale store services, advertising and marketing services, jewelry, precious and semi-precious stones, and horological and chronometric instruments.
Separately, the USPTO reissued the trademark ''Meierotto Midwest Jewelers'' to Meierotto's Jewelry LP of Kansas City, Missouri on March 18 with the registration number 4497364. The trademark applies to retail jewelry stores and was first used in commerce in May 2009.
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MINING
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Gahcho Kue Production Target 3Q16
The first diamond production from the Gahcho Kue mine in northern Canada is anticipated in the third quarter of 2016, according to Mountain Province Diamonds and its joint-venture partner, De Beers Canada. Regulatory restrictions imposed this year limited material that can be trucked to the site over the annual winter ice road. In particular, shipments of cement and steel have been delayed but the partners are exploring opportunities to mitigate the impact on the project schedule.
The winter ice road enables trucking in earnest for about two months every year, allowing mining companies who operate in the area to bring in necessary supplies that will supply them throughout the year.
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Fieldwork Continues at PL 117
Botswana Diamonds completed its initial fieldwork at the prospecting license PL 117/2011 in the Orapa region of Botswana and which it shares with joint venture partner ALROSA. The license is a small, 2.9-square-kilometer area of ground that was identified as a priority target under the partnership agreement. A team of senior geologists and geophysicists from both companies embarked on a rapid and intensive work program designed to identify drill targets on the license. Tasks completed on the ground included magnetic, electromagnetic and geochemical surveys. The geochemical samples are now being shipped to ALROSA's laboratory in St. Petersburg, Russia for mineralogical analysis. Simultaneously the interpretation and modeling of the geophysical fieldwork is ongoing.
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Stornoway Draws $10M
Stornoway Diamond Corporation has drawn $10 million on the second tranche of its unsecured non-revolving bridge credit facility of up to $20 million with Diaquem Inc. in connection with the development of the Renard diamond project and for general corporate purposes, including costs relating to Stornoway's ongoing project financing activities. The facility is now fully drawn. In addition, Diaquem has agreed to extend the maturity date of the facility from March 28 to June 27.
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ECONWATCH
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Diamond Industry Stock Report
U.S. and Hong Kong shares were mainly lower, led by Charles & Colvard (-22%) and Chow Sang Sang (-9%). European shares were all higher except for Swatch (-1%). Indian shares were mixed with Classic Diamonds (-20%) and Rajesh Exports (+12%) defining the spread. Mining companies were slightly higher led by Lucara (+7%). View the extended stock report.
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Mar. 27 |
Mar. 20 |
Chng. |
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| $1 = Euro |
0.727 |
0.725 |
0.002 |
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| $1 = Rupee |
60.33 |
61.33 |
-1.0 |
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| $1 = Israel Shekel |
3.50 |
3.48 |
0.02 |
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| $1 = Rand |
10.58 |
10.90 |
-0.32 |
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| $1 = Canadian Dollar |
1.10 |
1.12 |
-0.02 |
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| Precious Metals |
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| Gold |
$1,293.10 |
$1,328.70 |
-$35.60 |
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| Platinum |
$1,394.00 |
$1,425.00 |
-$31.00 |
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| Stock Indexes |
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Chng. |
| BSE |
22,214.37 |
21,740.09 |
474.28 |
2.2% |
| Dow Jones |
16,264.23 |
16,331.05 |
-66.82 |
-0.4% |
| FTSE |
6,588.32 |
6,535.24 |
53.08 |
0.8% |
| Hang Seng |
21,834.45 |
21,182.16 |
652.29 |
3.1% |
| S&P 500 |
1,849.04 |
1,872.01 |
-22.97 |
-1.2% |
| Yahoo! Jewelry |
1,016.82 |
1,008.99 |
7.83 |
0.8% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Slightly better activity with stable demand for dossiers; stable demand continues for -2 sieve and 0.08ct. to 0.29ct. and tight liquidity prevails at the close of this fiscal year. Read the full report.
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