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Jewelry Shops Escape Holidays Untarnished

Tiffany and Whitehall raise their guidance, and Zale posts an increase in same-store sales.

Shoppers didn't miss the opportunity to load up on shiny accessories this holiday season, enabling some of the nation's top jewelry chains to raise their quarterly guidance and spurring analysts to offer optimistic forecasts.


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Whitehall Jewellers


lifted their fourth-quarter earnings guidance this week as a result of strong holiday sales, and



posted an increase in sales for the last two months of the year.

Whitehall now expects fourth-quarter earnings of $1.04 to $1.08, compared with Wall Street's consensus estimate of $1. Tiffany said earnings would come in at the high end of its expected range of 49 cents to 56 cents a share.

Analysts were mostly positive after seeing the results, and investors responded to the sales reports by continuing to push Tiffany higher and sending Whitehall and Zale to 52-week highs.

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In recent action, Tiffany was up 0.8% to $35.12. Whitehall was gaining almost 9% to $14.15, and Zale was tacking on 2.4% to $44.08.


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was sitting out the rally, trading down 1.9% to $10.60, but the company enjoyed a nice gain in Tuesday's session.

Consumers did more shopping this past holiday season than most people had expected, and jewelry purchases were no exception. But shops selling pricey accessories have been hit, at least to a degree, by the slowing economy.

Upscale outfit Tiffany reported Tueday that U.S. same-store sales for November and December dropped 3%, and worldwide same-store sales fell 2%. Still, those results were significantly better than the double-digit declines many analysts were projecting. Whitehall said comparable-store sales for the last two months of the year fell 4.7%. Zale's same-store sales for November and December rose 1.8%, well above analysts' expectations for a decline of 3% to 7%.

November and December are crucial for jewelry retailers, who collect 30% to 40% of their annual sales from the two-month period. In short, strong holiday sales add a lot of padding to full-year numbers.

Some experts expressed concerns about the stocks' valuations in light of their gains during the last four months. Friedman's, Tiffany, Whitehall and Zale all have run up more than 55% since Sept. 21, when the major equities averages hit their nadir following the terrorist attacks. But based on what they've seen for the end of the year, analysts from Credit Suisse First Boston, Lehman Brothers, Merrill Lynch and Robertson Stephens have raised their earnings expectations, hiked their price targets or upgraded their ratings on Tiffany and Zale.

Bright Horizons?

Analysts believe the strong holiday sales reflect improving consumer confidence levels and likely bode well for the coming months. The Conference Board's consumer confidence index rebounded in December after declining sharply for three months in a row, rising to 93.7 from 84.9 in November. The expectations index jumped to 91.5 from 77.3.

On the other hand, holiday buying patterns may have been thrown off by the terrorist attacks, some analysts said. "There could have been pent-up demand after Sept. 11, or maybe Americans were feeling particularly emotional about this holiday season," said Credit Suisse First Boston's Richard Baum. "I don't think you can absolutely say that they've turned the corner, but it can't get much worse from here."

Analysts are expecting sales to turn positive by the second half of 2002. Tiffany's fiscal year ends in July, and Zale wraps up the year in June.

In the meantime, the jewelry chains could be poised to benefit from the departure of Service Merchandise, which announced last week that it would wind up its operations and shut all of its stores. Service Merchandise racked up $650 million in annual jewelry sales, and other jewelry retailers could grab some of its customers.

Michael Exstein, who follows Zale for CSFB, said that chain might pick up 5% to 10% of Service Merchandise's market in the next two quarters, which would add a "nice increment" in what is usually an "off season" for the jewelry business.