Japan crisis hits Tiffany profits as shops shut

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Jeweller adjusts forecasts as second-largest market is devastated.

Tiffany has been hit by the crisis in Japan as the enforced closure of its stores in the country has led to the luxury jewellery brand lowering its first quarter profit expectations.

The brand has 55 stores in Japan, almost a quarter of its own stores globally employing 700 people, and the country accounts for 18 percent of its sales, so the earthquake and resulting tsunami has hit the jewellery brand hard.

Tiffany said that it expects sales in Japan to have fallen 15 percent as a result of its shops closing in the aftermath of the natural disaster. Shops that have since reopened, which most did this weekend, have been operating under reduced hours.

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Tiffany chairman and chief executive officer Michael Kowalski said: "We are saddened by the tragic events in Japan. Our thoughts are with our more than 700 Tiffany colleagues and with all the people of Japan. Tiffany stores located in the Kanto and Tohoku regions, which generate somewhat more than half of sales in Japan, were closed or operating on reduced hours after the earthquake and tsunami, with physical damage limited to a few stores. Most stores have re-opened over the past weekend. Our stores in the southwestern Kansai region have remained open."

Tiffany said it was unable to provide meaningful forecasts about sales in Japan beyond the first quarter and therefore had not adjusted its sales or earnings plan for the remaining quarters of 2011.

Kowalski said: "In preparing our financial expectations for 2011, we have assumed some continued periodic store closings or limited store hours in Japan through the end of the first quarter, resulting in worldwide sales growth of 11 percent in the first quarter, with total Japan sales declining 15 percent. This leads us to now expect that earnings in the first quarter will be reduced by approximately $0.05 per diluted share from our initial expectation of $0.62 per diluted share to a new expectation of approximately $0.57 per diluted share (versus the prior year of $0.48). We cannot provide meaningful forecasts about sales in Japan beyond the first quarter and, therefore, have not adjusted our sales or earnings plan for the remaining quarters of 2011."

Japan has proved a tricky market for Tiffany in recent years, as it has for many other luxury watch and jewellery brands, but it is still its second-largest market. However, analysts have said that should sales in Japan suffer further then Tiffany could supplement its growth by focusing on China, which Deutchebank has estimated will provide more than half of the luxury industry’s total gains over the next 10 years.

During the fourth quarter, Tiffany opened four new stores in China, including two in Shanghai, but permanently closed two in Japan.

Outside of Japan, Tiffany presented a strong front with an increase in annual profits to US$185 million (£113.6m) in the fourth quarter to January 31. The brand said that strong Christmas demand and new products helped its fourth-quarter net income rise 29 per cent.

In Europe, sales increased 14 percent to US$137.9 million in the fourth quarter and rose 18 percent in the full year to US$360.8 million, which accounted for 12 percent of worldwide sales. On a constant-exchange-rate basis, sales rose 21 percent in the quarter, due to strong growth in the UK and most of continental Europe, and increased 23 percent in the full year. On that basis, Tiffany said, comparable store sales rose 16 percent and 18 percent.

Tiffany said that it expects sales to grow this year in all of the regions it operates in except Japan, where it predicts a "mid-single digit" decline.

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