Rapaport Magazine

Retail Bulletin

August 2008

By Rapaport
RAPAPORT...  Lower Earnings Predicted for Tiffany

Goldman Sachs concluded that, for the long term, shares in Tiffany & Co. will remain a good investment. However, the luxury retailer will have to contend with a few bumps this year and next, since consumer confidence and high-end spending in the U.S. have weakened. Goldman Sachs stated that “Second-half performance might fall short of management’s current assumptions that call for U.S. comps to be slightly positive in the third quarter and increase 4 percent to 6 percent in the fourth quarter.” The firm lowered its fiscal 2008 earnings per share (EPS) estimate to $2.75 from $2.88, below Tiffany management’s guidance of $2.80 to $2.90, while lowering its fiscal 2009 estimate to $3.14 from $3.28 and subsequently dropping its target share price for Tiffany to $46 from $53. Goldman Sachs noted that Tiffany has shown “tremendous resilience” year-to-date, but believes the likely worsening domestic-spending environment will become tougher to mask with tourism and global diversification.

Damas Raises $270 Million in IPO

Damas raised $270.6 million, or $1 per share, in its initial public offering (IPO) of 270 million shares, upping its market value to $968.6 million. The jewelry retailer will use the IPO to expand its network of stores and fund acquisitions, specifically 131 new stores in 2008 and 100 more in 2009. Damas also granted Credit Suisse Securities in Europe and HSBC Bank, its joint global coordinators, the option to purchase up to an additional 40.6 million shares if the purchase is completed within 30 days of its recent listing on DIFX, one of three United Arab Emirates (UAE) exchanges.

Finlay Delists from NASDAQ

Finlay Enterprises announced that its common stock began trading on the Over-The-Counter Bulletin Board (OTCBB) in the wake of being delisted from the NASDAQ on July 11. The company’s trading symbol remains “FNLY.” One year ago, Finlay shares traded at $5.35, but fell below the dollar mark on February 25, 2008, bottoming out at 34 cents in April. Finlay received notification from the NASDAQ that its shares were no longer in compliance with NASDAQ Marketplace Rule 4450(a)(2) after its common stock failed to maintain the minimum market value requirement of $5 million for publicly held shares.

Signet Proposes Listing on NYSE

Signet Group proposed a series of changes to shareholders, namely moving its primary listing from the London Stock Exchange to the New York Stock Exchange (NYSE) and, in conjunction with this move, relocating the parent company domicile from London to Bermuda. The new company name would be Signet Jewelers Limited.

The changes were presented as the next steps in the evolution of Signet’s shareholder base, which has seen a steady growth in U.S. ownership since 2003, including a significant increase in the past 12 months, with almost 50 percent of Signet’s voting securities now owned by U.S. residents. If approved, the change in primary listing and domicile is expected to be completed in September 2008. As part of the proposal, Signet Jewelers Limited intends to implement a one-for-twenty share capital consolidation — also known as a reverse stock split — when it begins trading on the NYSE in order to trade more closely with its peers.

Richemont Sales Jump

Richemont SA reported that sales rose 13 percent to $2.3 billion (EUR 1.4 billion) in its first fiscal quarter ended June 30, 2008. Cartier and Van Cleef & Arpels, the company’s Jewellery Maisons division, saw a 16 percent increase in sales to $1.2 billion (EUR 737 million), while its specialist watchmakers’ sales grew 13 percent to $656 million (EUR 415 million). Richemont said sales rose in all regions except Japan, with Asia-Pacific soaring 21 percent. The company’s sales in Europe, its largest market, grew 17 percent and sales across the Americas increased 6 percent. Richemont plans to split into two companies, spinning off its 19.3 percent stake in British American Tobacco Plc., and creating a luxury business based in Switzerland and an investment company based in Luxembourg.

eBay’s Second-Quarter Profits Rise While Shares Fall

eBay’s second-quarter sales grew 20 percent to $2.2 billion from $1.8 billion in the same period last year, while profits rose 22 percent to $460.3 million from $376 million. PayPal sales at the auction site totaled $602 million for the three months ended June 30, an increase of 33 percent from 2007. Revenue from Skype, eBay’s internet-telephone unit, rose 51 percent to $136 million in the quarter. However, Merrill Lynch and Goldman Sachs downgraded eBay shares from “buy” to “neutral,” after the company’s gross merchandise volume — the value of all goods sold by users at its websites — rose just 8 percent, the smallest increase in at least five quarters, and the average selling price fell 6 percent, according to an eBay statement. eBay shares fell over 13 percent in the wake of these downgrades. The company predicted third-quarter profits of 39 cents to 41 cents per share on sales of $2.15 billion.

Japan’s First-Half Jewelry Sales Down 3 Percent

Same-store sales at 280 department stores in Japan fell 3 percent to $33.9 billion (JPY 3.6 trillion) for the period extending from January through June, according to the Japan Department Stores Association. Jewelry and cosmetic sales decreased 2.3 percent in the first half of the year. The Association noted that consumers were increasingly worried about the economy as prices for oil and food surged. In Tokyo alone, same-store sales fell 1.8 percent for the first half to $8.4 billion (JPY 902 billion). For the month of June, overall sales in Tokyo declined 7.6 percent.

Christie’s International Jewelry Sales Soar in First Half

Strong jewelry sales helped spur Christie’s International performance in the first half of 2008, as total company sales rose 10 percent to $3.6 billion. Jewelry, jadeite and watch sales rose 34 percent to $280 million, with Asian art, the largest growth area, up 63 percent to $477 million.

Among the jewelry highlights during the half year were the June sale in London, which generated $30 million, a record for a U.K. jewelry auction. Similarly, its New York sale in April, the most valuable jewelry auction ever held in the Americas, was valued at $50 million. Both of these were topped by the Hong Kong sale, which was Christie’s most valuable jewelry sale ever, with a total of $60.1 million sold. First-half sales in the U. S. fell 1 percent to $1.2 billion, while sales in Europe were up 6 percent to $1.7 billion.

Desjardins Lowers Target Share Price for Harry Winston

Desjardins Securities lowered its target share price of Harry Winston Diamond Corporation to $39 from $53.50, with analyst John Hughes stating that the company had become more of a high-end retailer than a diamond mining company. Hughes re-evaluated how they calculated Harry Winston’s value, modeling earnings per share (EPS) after Tiffany & Co. Desjardins maintained a “buy” rating for HWD on the New York Stock Exchange (NYSE).

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