Tiffany and Pandora defy odds with solid profits

3.6 k views | Posted December 06, 2011 | By Aaron Weinman

Global jewellery brands Pandora and Tiffany reported better-than-expected results for the third-quarter of 2011.

In these troubled times, international brands are certainly feeling the pinch – but slightly less painfully than predicted.

Danish jeweller Pandora’s third-quarter net profit exceeded analysts’ forecasts, but recorded a significant drop in profits nevertheless. The company’s annual net profits were down 41 per cent to 341 million Danish kroner (AUD$61 million) compared to 578 million kroner in the previous corresponding period.

Meanwhile luxury retailer, Tiffany reported a 63 per cent increase in net profit, recording $USD89.7 million (AUD$90 million), up from the $USD55.1 million (AUD$55.3 million) in 2010.

Analysts told The Wall Street Journal Pandora’s weaker sales of charm bracelets, combined with increased metal prices and selected discounting, contributed to its drop in earnings.

Nicolaj Jeppesen, analyst with Danish-based bank Sydbank said the results were a relief after a difficult first half for Pandora.

“Sales were better than we had feared, which is a clear indication that the dramatic sales slump in the second quarter was caused primarily by a poor pricing strategy,” Jeppesen said. “The worst-case scenario has improved markedly today, and interest in Pandora’s concept is still there.”

Sales for the quarter reached 1.57 billion kroner, down 12 per cent on last year’s corresponding figure of 1.79 billion kroner. Analysts, however, had forecast 1.47 billion kroner for the third-quarter.

Pandora CEO, Marcelo Bottoli announced plans to overhaul pricing and reduce the company’s product line.

“We raised prices too fast and consumers lost appetite for our products,” Bottoli said. “Demand is becoming firmer and the company will look to expand rather than consolidate.”

Bottoli believes the company’s focus will shift to its Asian and Eastern European growth markets and intends to push ahead with the conversion of its retail chain to company-run concept stores.

As reported by Jeweller last week, Pandora opened two concept kiosks in New Zealand, the first of its kind in the country. In the third quarter this year, Pandora opened twice as many exclusive outlets in its growth markets than in the first half of 2011.

In related news, US luxury jeweller, Tiffany & Co raised its full-year forecast as a result of increased performance in its third-quarter, according to company statements.

Tiffany’s Asia-Pacific market continued to spend freely as revenue rose 44 per cent to $USD183.2 million (AUD$181.3 million), helped mainly by strength in the greater China region, reported News Limited. In addition, revenues in Japan and Europe rose by 12 and 19 per cent respectively.

Significantly, revenue in stores that have been open at least one year raised an average of 16 per cent. Because it excludes stores that open or close during the year, this particular measure is considered a key indicator of a retailer’s financial health.

Company CEO, Michael J Kowalski said the Asian segment rebounded quicker from the recession than others and high-end jewellery continued to sell better than other categories.

In the Americas, sales grew 17 per cent to $USD387.7 million (AUD$384.1 million) and significant growth was witnessed in all price ranges above $USD250 (AUD$244), particularly at higher price points.

Engagement rings, high-end statement jewellery – a category that includes expensive designs including a $100,000 diamond necklace – were big sellers.

However, increased sales in such high-priced jewellery, a category with tighter efficiencies, saw the brand lose out on gross margins. Tiffany forecast its fourth-quarter earnings below expectations, including the vital Christmas period.

The company expects net income of USD$1.48-1.58 (AUD$1.45-1.55) per share, while analysts expect USD$1.63 (AUD$1.59) per share.

More reading:
Tiffany upbeat after first-quarter results
Pandora revises 2011 targets
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