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Harry Winston 3Q Sales -16% to $149M, Strong Dollar Helps Boost Profit to $72M

Dec 10, 2008 6:01 PM   By Jeff Miller
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RAPAPORT...  Harry Winston Diamond Corporation reported that its sales fell 15.8 percent to $148.6 million during the third quarter of its fiscal year 2009. In results released after the markets closed December 10, the mining company and luxury retail jeweler reported that its profits for the period were $71.9 million, up from a loss of $7.4 million one year ago. The increase was positively impacted by a $49 million net foreign-exchange gain. One year ago, due to the weak dollar, Harry Winston reported a foreign-exchange loss of $41 million. The company's gross margin as a percentage of sales was 51.8 percent, down from 57.7 percent one year ago.

Rough diamond sales fell 26.1 percent to $90.7 million in the third fiscal quarter. Gross margin as a percentage of sales was 55.2 percent in the company's mining segment, down from 62.5 percent. This reduction was due to a combination of lower sales and the fact that a smaller proportion of costs could be attributed to development activity than in the previous year. Rough diamond production decreased 26 percent in the third quarter. Rough diamond sales for the nine months ending October 31 fell 10.8 percent to $277.1 million.

Rough diamond prices, which peaked in August 2008, have declined to their levels during the first quarter of 2007, Harry Winston reported. "The rough diamond market remains nervous, with manufacturers reluctant to hold rough diamond inventory in the face of the uncertainty of holiday season sales. The company expects uncertainty and volatility in the rough diamond market to persist into the New Year."

Harry Winston's retail sales rose 7.7 percent to $57.9 million. Gross margin as a percentage of sales remained flat at 46.4 percent. The retailer reported a loss of $4.04 million from operations, down 11.3 percent from its loss of $3.63 million one year ago. Sales to the European market increased 15 percent to $23.4 million, and sales in the U.S. rose 10 percent to $21.3 million. Sales in Asia dropped 5 percent to $13.2 million. Selling, general and administrative (SG&A) expenses increased 7.3 percent to $30.9 million, due primarily to the continued expansion of Harry Winston's retail salon network.

Retail sales for the first three quarters of fiscal year 2009 grew 18.3 percent to $213.7 million. Sales to the European market increased 36 percent to $86.7 million, and sales in the U.S. rose 14 percent to $75.2 million. Sales in Asia rose 2 percent to $51.8 million. The cost of sales rose 19.3 percent to  $113.2 million.

Harry Winston expects the diamond jewelry market to be "challenging throughout the holiday season and into the next fiscal year." The company maintained that it is difficult to predict the magnitude of the economic downturn.

The December 5th armed robbery in Paris is expected to impact sales and SG&A expenses into fiscal 2010. "[A]pproximately $30 million in company-owned and consigned retail inventory at cost was stolen during a robbery at the Harry Winston Paris salon. The company has an insurance policy in place and an insurance claim is subject to investigation by insurers."



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Tags: Harry Winston, Jewelry, Production
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