Rapaport Magazine

Retail Bulletin

July 2007

By Rapaport
RAPAPORT... Signet Profits -6 Percent

The Signet Group’s first quarter sales rose 10.9 percent to $814.4 million for the period ended May 5. At a constant exchange rate the increase was 8.1 percent. Same-store sales rose 3.1 percent, but the operating margin was 6.6 percent, down from 7.7 percent one year ago. Profits fell 5.5 percent to $32.5 million. In the United States, Signet sales rose 10.1 percent to $632.3 million, and same-store sales rose 3.2 percent. Signet called U.S. market conditions “challenging” and said that Mother’s Day weekend sales were weak. Operating profits fell 4.5 percent to $60 million and costs rose 11 percent. In the United Kingdom, sales rose 1.7 percent at constant exchange rates, but 14 percent as reported, to $182.1 million. Same-store sales rose 2.6 percent. Still, said Terry Burman, Signet Group CEO, “Profit before tax of $50.8 million demonstrates the underlying strength of the Group.”

Tiffany Profits, Sales Up

Jewelry retailer Tiffany & Co. announced on May 31 that both sales and profits rose 15 percent in the first quarter of 2007 compared to the same period in 2006. The New York–based company reported net sales of $620.87 million for the three-month period ended April 30, 2007, with strong growth in all regions except Japan. On a constant-exchange-rate basis, excluding the effect of translating foreign-currency sales into U.S. dollars, net sales increased 14 percent and worldwide comparable store sales rose 8 percent. Net profits rose 15 percent to $49.66 million for the quarter, while earnings per diluted share went up 20 percent to 36 cents.

The United States was Tiffany’s strongest market, with retail sales rising 15 percent to $298.68 million thanks to increased spending per transaction. Comparable store sales in the United States grew 12 percent, boosted by a 26 percent rise at the New York flagship store.

Six stores opened in the past year also contributed to sales growth; there are now 65 Tiffany & Co. stores in the United States.

International retail sales rose 15 percent to $248 million, up 27 percent in Europe and 35 percent in Asia and the Pacific, excluding Japan, where sales declined 3 percent. Tiffany added a net of three retail locations and operated 106 Tiffany & Co. international stores and boutiques at the quarter’s end.

Michael Kowalski, Tiffany’s chairman and chief executive officer, said the company plans to increase the number of outlets by about 10 percent this year. Meanwhile, direct-marketing sales rose 11 percent to $33.29 million, thanks to growth in the number of orders received and the average amount spent per order. Sales of wholesale diamonds rose $5.2 million.

The rise in diamond sales also contributed to a drop in gross margin (gross profit as a percentage of sales) to 54.5 percent, compared to 55.8 percent in the first quarter of 2006. As a result of planned increases in store- and marketing-related costs, selling, general and administrative expenses rose 13 percent to $257 million.

Kowalski said that second-quarter sales were meeting company expectations and showing the same trends as the past quarter.

The full year 2007 expectation sees 12 percent sales growth, an improved operating margin and earnings per diluted share in a range of $2.10 to $2.15. The company also will expand its branded wholesale watch distribution in 2007.

Rumors of a takeover of New York-based Tiffany & Co. by LVMH Moet Hennessy Louis Vuitton of Paris have fueled a bullish run on the company’s stock price.

On June 25, shares of Tiffany & Co. (TIF) climbed as much as 6.8 percent to $53.96 before closing up 4 percent at $51.91 a share, with some 5.6 million shares changing hands in the day’s composite trading, according to Reuters. At opening on June 26th, the stock went for $53 a share, and it continues to be traded heavily.

Birks & Mayors Cuts Fiscal Losses

Luxury jeweler Birks & Mayors significantly cut its losses in the fourth quarter of fiscal 2007 ended March 31. The Montreal-based company reported a net loss of $1.9 million, or 17 cents per share, showing an improvement of 66.9 percent from one year ago. Operating losses improved 34.9 percent to $2.4 million for the quarter, while gross margin expanded by 150 basis points to 45.9 percent of net sales.

Net sales for the quarter fell 1.6 percent to $55.37 million. Comparable store sales increased 3 percent although the growth rate slowed from the 8 percent increase seen in the prior one-year period.

The company closed fiscal 2007 with a 6.9 percent increase in sales to $294.3 million. Same-store sales increased 4 percent, following an 11 percent rise in fiscal 2006. Net income increased 129.7 percent to $13.1 million.

Bulgari Jewelry Sales, Profits Up

Bulgari S.p.A. reported on May 16 that net profits grew 31.5 percent to about $32.5 million (€23.9 million) in the first quarter of 2007, boosted by growth in its jewelry business. Revenues rose by 16.4 percent for the Rome-based luxury retailer, to $306.08 million (€225.1 million), at comparable exchange rates, and rose by 10.4 percent at current exchange rates. Gross margins in the quarter rose 10.4 percent to $198.9 million (€146.3 million), while total operating costs grew 8.5 percent to $150.4 million (€110.6 million). Operating profit increased 20.4 percent to $35.7 million (€26.3 million).

Bulgari noted that sales in its jewelry line, making up 42 percent of the company’s total sales, showed a “spectacular performance” for the period ending March 31, with growth of 24 percent to $127.8 million (€94 million).
Among its other products, the company’s watch segment grew 8.6 percent to $79.5 million (€58.5 million). Bulgari’s perfumes sales rose 32 percent to $58.4 million (€43 million), and only its accessory segment declined 11.3 percent to $28.7 million (€21.1 million).

Based on the positive trend of the quarter, the company expects an increase in sales and net profit of between 8 percent and 12 percent for the full year 2007.

Novori Retires 19M Shares

Online diamond retailer Novori Inc., based in Bellingham, Washington, retired 19 million shares of insider common stock in favor of preferred convertible stock. This reduced the total number of NOVO outstanding common shares, and the preferred stock will not be trading. Novori’s management and board of directors believe that retiring currently issued common stock will decrease the number of shares outstanding, and increase nonaffiliate shareholder value.

Novori also reported that revenues grew 53 percent in the first quarter ended February 28, the first full quarter after it began stock trading under NOVO.OB (Over-the-Counter Bulletin Board). The company attributed its surge in sales to increased consumer awareness of the Novori website and to its strong presence and high ranking on internet search engines.

U.S. Same-Store Sales Up

Same-store sales at more than 50 U.S. retailers grew 2.6 percent in May compared to April, according to TNS Retail Forward, a market research company.

TNS reported a rebound from a weak month in April, when same-store sales declined 1.5 percent from the previous month. May sales were still 4.4 percent lower than those reported in May 2006.

“This provides some evidence that April was a fluke and shoppers aren’t ready to check out of this economic cycle,” said Frank Badillo, senior economist and director of the Retail Forward KnowledgeBase. “As long as job and income growth is sustained, at least for upper income households, then that should help offset the impact of high fuel prices, the weak housing market and other drags on the economy.”

TNS reported that better than average results were posted by warehouse clubs, drug stores and dollar stores, while department stores “held their own,” led by the upscale department stores.

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