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Tiffany's strong China sales offset tepid America's business

08/27/2013 | 08:49am US/Eastern
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(Reuters) - Tiffany & Co's (>> Tiffany & Co.) strong sales in China and higher prices helped mitigate disappointing business in its home market in the second quarter, leading the U.S. jeweller on Tuesday to raise its profit forecast for the year.

(Reuters) - Tiffany & Co's (>> Tiffany & Co.) strong sales in China and higher prices helped mitigate disappointing business in its home market in the second quarter, leading the U.S. jeweller on Tuesday to raise its profit forecast for the year.

Shares of Tiffany rose 2.2 percent to $83.50 in trading before the market opened.

There were fears this summer that luxury spending in China could slow, but Tiffany is the latest Western brand to report good sales there. Prada SpA (>> Prada S.p.A.) and Coach Inc (>> Coach, Inc.) recently posted big gains in the world's fastest growing luxury market.

But in the Americas, still Tiffany's biggest market, sales at stores open at least a year were unchanged, suggesting the company may have faced the same summer pullback by U.S. shoppers that dented sales at chains ranging from Saks Inc (>> Saks Inc) to Target Corp (>> Target Corporation).

"Business in the Americas is light. They continue to struggle with low-end jewellery sales," said Edward Jones analyst Brian Yarbrough.

Still, the pick-up in business outside the Americas, where Tiffany is focusing its expansion, reassured Wall Street that the jeweller's growth prospects remain good, he said.

Tiffany has struggled to find the right mix between the expensive statement jewellery it is famous for and more affordable silver items, typically less than $500, that generate 25 percent of sales and comprise its most profitable category.

The company, famed for its robin's egg blue boxes, said global sales rose 4.4 percent to $925.9 million (597.5 million pounds) in the second quarter ended July 31, below the $941.4 million analysts were expecting, according to Thomson Reuters I/B/E/S.

Same-store sales climbed 5 percent, in line with analysts' estimates.

Brisk business in China fuelled a 13 percent same-store sales gain in Asia outside Japan, well above estimates, which called for a 9 percent increase.

Same-store sales rose 7 percent in Europe, excluding currency fluctuations. In Japan, excluding the impact of the weak yen, same-store sales were up 8 percent, led by high-end jewellery. Overall, sales in Japan fell 14 percent, including the currency effect.

Global net sales would have been up 8 percent if not for the strong U.S. dollar.

Tiffany still expects net sales worldwide to increase by a mid-single-digit percentage for the year, including the effect of the strong dollar.

Second-quarter net income rose to $106.8 million, or 83 cents per share, from $91.8 million, or 72 cents per share, a year earlier.

Per-share profit beat the average Wall Street estimate by 9 cents, helped by lower pressure from diamond and gold costs. Tiffany said its price increases did not deter shoppers.

The company now expects a profit of $3.50 to $3.60 per share for the full fiscal year, up 7 cents from its previous forecast range.

Last year, Tiffany's shares came under attack after it repeatedly lowered its forecasts.

(Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn and John Wallace)

By Phil Wahba

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