Jewelry retailers Tiffany & Co. and Zale Corp. said Thursday they made money this summer, but their quarterly sales performance suggested the luxury end of the market is stronger than the vast middle.Zale, which operates middlebrow chains such as Zales Jewelers and Gordon's Jewelers, saw its same-store sales fall 0.5 percent.
But at high-end Tiffany, sales at stores open at least a year — one of the most closely watched indicators in retailing — jumped 17 percent in the United States and 13 percent overall from a year ago.
Industry experts said Zale's middle-class shoppers were feeling pinched by high energy prices and slumping housing markets.
"The economy and the mortgage market are in flux, and that has some effect on purchases of luxury items such as jewelry," said Mark S. Gottlieb, a business appraiser who has testified in court and written about the jewelry industry. "It may have more impact on the Zale-type customer than the Tiffany-type customer."
Despite the increase in same-store sales, Tiffany's profit in the May-July quarter fell 10 percent due to a charge for selling its Little Switzerland retail business.
Net income was $37 million, or 26 cents per share, down from $41.1 million, or 29 cents per share, a year earlier.
Excluding the charge and results from the pending sale of Little Switzerland, New York-based Tiffany said operating profits were 45 cents per share. Analysts, who usually exclude one-time items from their estimates, had forecast 34 cents per share, according to a survey by Thomson Financial.
Overall sales rose 20 percent to $662.6 million from $554.7 million a year ago.
Tiffany raised its expected earnings per share for all of 2007 by 12 cents to between $2.22 and $2.27, better than Wall Street's forecast of $2.13. The figures don't include a gain from the $328 million sale of the chain's Tokyo flagship store, a site the company bought four years ago for $140 million.
Shares of Tiffany rose $1.28, or 2.7 percent, to $49.40 Thursday.
Zale said it swung to a quarterly profit of $1.5 million, or 3 cents per share, after losing $27.4 million, or 57 cents per share, during the same quarter in 2006.
The Texas-based retailer said that excluding a special tax gain and other one-time items, it would have broken even. Analysts had forecast a loss of 13 cents per share, according to Thomson.
Revenue dipped to $488.2 million from $490.7 million a year ago.
Zale's decline in same-store sales might have been worse than the reported 0.5 percent but for the company's practice of including Internet sales in those figures. The company says it does so to offset the in-store sales that are replaced by online orders.
Over the next 12 months, Zale expects same-store sales to rise 1 to 2 percent.
This was the last quarter in Zale's fiscal year. For the new fiscal year, Zale predicted it would lose money in the August-October quarter but earn $1.11 to $1.16 per share for the full year — or $2.11 to $2.16 per share including revenue from selling lifetime warranties on jewelry.
Zale, which operates more than 2,200 stores and kiosks, is trying to recover from missteps by previous management by returning to its old strategy of selling diamond jewelry at competitive prices.
This week, Goldman Sachs downgraded Zale shares to "sell" from "neutral," saying that future earnings would be hurt by a tough sales environment, management upheaval and poor strategic positioning.
Chief Executive Mary E. "Betsy" Burton said the company is centralizing functions such as purchasing for all its brands instead of letting them operate independently, and is focusing on improving its mall business.
Burton admitted that malls are "not a growth engine," but said those stores still generate lots of cash. She also said Zale wanted to improve customer service, an area where "we've lacked focus."
The company closed some Bailey Banks & Biddle outlets, and Burton said it may close additional stores after Christmas or sell the entire Bailey chain or the Piercing Pagoda line of mall kiosks.
Zale's latest results included a tax gain of $6.7 million, or 14 cents per share, from reinvesting foreign earnings; a gain of $1.1 million, or 2 cents per share, from hedging on gold and silver purchases; and a one-time cost of $6.3 million, or 13 cents per share, for delayed revenue due to a change in jewelry-warranty plans.
For all of fiscal 2007, Zale earned $59.3 million, or $1.21 per share, up from $53.6 million, or $1.09 per share in the last fiscal year. Revenue was flat at $2.44 billion.
WR Hambrecht analyst Melissa Otto raised her rating on Zale shares from "sell" to "hold" and boosted Tiffany's rating from "hold" to "buy."
Shares of Zale rose $1.81, or 8.7 percent, to $22.62 Thursday.
Source: ap
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