The decline of the dollar vs. other currencies helped put a shiny finish on the jewelry chain's overseas results. Even that patina couldn't cover up the tarnished results at Tiffany's Japanese division, its largest outside the U.S.
But image may be more important than reality. Despite the mixed report, investors bought up Tiffany shares. In recent trading, the company's stock was up $1.58, or 4.3%, to $38.70.
To be sure, Tiffany's report offered a lot for investors to like. In the fourth quarter, the company earned $110.48 million, or 74 cents a share, on $731.59 million in sales. The company's earnings per share rose 23.3% from the fourth quarter a year ago on an 18.2% gain in sales.
Those results outshone both the company's forecast and Wall Street's expectations.
Analysts polled by Thomson First Call had forecast earnings of 70 cents a share on sales of $716.7 million. Last month, Tiffany officials raised the company's fourth-quarter earnings guidance to 68 cents to 71 cents per share.
The company's result was boosted by gleaming sales growth in the U.S. and overseas. Tiffany's U.S. sales, for instance, grew 20% in the quarter. On a same-store basis, which compares like results at outlets open more than one year, domestic sales grew 17% in the quarter.
Meanwhile, sales at the retailer's international division rose 18% in the quarter. Such sales accounted for 39% of the company's total sales in the quarter.
Sales by the company's specialty stores and by its catalog and Internet division grew more modestly, but still at respectable rates. Revenue from the company's specialty retail division, which includes its Little Switzerland and Temple St. Clair stores, rose 8% in the quarter, while revenue from the company's direct sales efforts increased 11%.
The strong sales overcame mixed results on the company's costs. Tiffany's gross margin, for instance, declined 21 basis points as a portion of sales to a still-gaudy 59.47%. Gross margin is the difference between what a company charges customers for its products and its direct costs of acquiring and providing them.
On a conference call with investors and analyst, Mark Aaron, the company's vice president of investor relations, attributed the decline in margin to a number of factors, including a change in the company's mix of sales toward lower margin products, an inventory charge, and costs related to a new distribution center and the development of a new diamond processing center.
Tiffany's made up for the decline in gross margin with a similar drop in operating costs. Such expenses fell 16 basis points as a portion of sales to 35.01%. Sales grew faster than the company's operating costs, Aaron said, explaining the percentage decline.
But not everything glittered so brightly for Tiffany in the quarter.
The company's overseas sales saw a big boost from the decline of the dollar. On a constant currency basis, such sales increased 7%, or less than half the reported dollar increase.
Meanwhile, Japan, which represents nearly a quarter of Tiffany's total sales, saw another sales decline. Total sales there dropped by 2% in the fourth quarter on a constant currency basis, while comparable-store sales fell 7%. Aaron blamed the drop on a decline in sales of silver and designer jewelry in the country.
Tiffany's is revamping its merchandising and marketing in Japan to try to revive growth there, he said.
"We've been in Japan since 1972," Aaron said. "We've successfully addressed challenges in past."
Even sales in the U.S. were uneven, as results from the company's flagship New York store lifted the company's overall U.S. performance. Same-store sales rose 22% at the New York store, compared with 15% overall.
For 2004, the company expects to earn $1.60 to $1.65 a share -- up 10% to 14% from 2003's $1.45 a share. The company projects sales growth of 11% to 13% over the $2.00 billion it posted in 2003, implying total sales of $2.22 billion to $2.26 billion this year.
Assuming the company achieves those objectives, it will represent respectable growth and best analysts' sales estimate of $2.21 billion. But Wall Street was expecting ritzier bottom-line results; analysts had forecast 2004 earnings of $1.64 a share, according to Thomson.