Q3 2010 Earnings Call
November 24, 2010 8:30 a.m. ET
Mark Aaron – VP, IR
Jim Fernandez – EVP and CFO
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Good day everyone, and welcome to this Tiffany & Co. third quarter conference call. Today's call is being recorded. Participating on this call is Mr. Jim Fernandez, executive vice president and chief financial officer, and Mr. Mark Aaron, vice president of investor relations. At this time I would like to turn the call over to Mr. Mark Aaron. Please go ahead sir.
Thank you. Hello and thank you to everyone for joining us. On today's call, Jim and I will provide you with a review and analysis of Tiffany's third quarter financial results and also comment on our outlook for the balance of the year.
Before continuing, please note Tiffany's Safe Harbor provision that statements made on this call that are not historical facts are forward-looking statements. Actual results might differ materially from the expectations projected in those forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially is set forth in Tiffany's 2009 annual report on Form 10-K and in other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Now we can proceed. We're pleased to deliver another quarter of strong financial performance. Worldwide sales growth of 14% was higher than we expected. Gross margin was also better than we expected, and SG&A expense growth was in line with our expectations, all of which contributed to a solid 27% increase in net earnings and a 43% increase in net earnings from continuing operations when excluding non-recurring items.
Despite challenging conditions that continue in some markets, these results reflect the powerful benefits from having a globally diversified store base. In fact, the combined sales of the Asia-Pacific, Japan, and Europe regions actually exceeded our U.S. sales in the third quarter.
Let's now look at the details. In the Americas, sales increased 9% in the third quarter. The overall sales growth came from increased average price per unit sold, as strong unit growth in the engagement, fine, and designer jewelry categories was offset by unit declines in silver jewelry. Comparable store sales on a constant exchange rate basis rose 5% in the quarter, versus a 10% decline last year. The trend improved as the quarter progressed, with increases of 1% in August, 6% in September, and 10% in October. This compared with declines last year of 17%, 8%, and 4% in the respective three months.
Please note that effective with our next report we will be discontinuing the disclosure of specific monthly comp store sales numbers for the Americas. Instead, in the future we will discuss intra-quarter changes and trends in a more general and directional sense as we do for our other geographic regions, which we think is more relevant.
Continuing with the quarterly review, sales in the New York flagship store declined 3% in the quarter, but our annual Blue Book customer event in New York occurred last year in October and this year in November. The eight New York-area branch stores posted a 1% comp increase. Comparable sales for branch stores in the Americas rose 8% in the quarter on top of a 10% decline last year.
Looking around the Americas, it was generally consistent single-digit comp growth in most regions, with the exception of greater strength in the Pacific Northwest as well as in Hawaii and Guam. Sales to local market customers increased in the quarter, but a larger portion of the sales growth in the Americas continued to come from higher sales made to foreign visitors. The sales results in the New York flagship store reflected no significant changes in sales to either local customers or tourists.
In terms of price stratification, we continued to see bifurcated performance, with declines in sales and transactions below $500, but double-digit percentage increases in most every other higher price category, indicating to us the diverging effects to one degree or another that the economy is having on consumer spending.
During the third quarter we opened new stores in Baltimore, Maryland, in the Towson Center, and in Santa Monica, California, in Santa Monica Place, and are very pleased with initial results. And just earlier this month, we opened our jewel salon in the New York flagship store where we invite our highest spending clients from throughout the world to see our statement jewelry collection in a luxurious new environment.
Complementing our stores in the Americas are Internet and catalog sales, which increased 7% in the quarter due to an increased average order size. This compared with an 8% decline last year. And lastly, the Americas region includes Canada, Mexico, and Brazil, and we are pleased to say that local currency comps in the quarter rose nicely in all three countries. We definitely see the potential for additional stores in those countries.
Let's now turn to the Asia-Pacific region, where a 24% sales increase was generated by higher spending per transaction tied to unit volume growth, especially in the fine and engagement jewelry categories. On a constant exchange rate basis, sales rose 20% and comparable store sales rose 11% on top of a 9% increase last year. The trend during the quarter showed the largest increase in October.
The greater China market now represents more than half of our Asia-Pacific sales and it posted the highest total sales growth in the region, while most other countries were up to lesser degrees, and Australia continued to be relatively soft.