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Tiffany & Company (TIF - Analyst Report) posted better-than-expected second-quarter 2011 results buoyed by improved demand for luxury items worldwide and consequently raised its full year outlook. The quarterly earnings of 86 cents a share surpassed the Zacks Consensus Estimate of 70 cents, and rose substantially from 55 cents earned in the prior-year quarter.

The Zacks Consensus Estimate rose by a penny over the last 30 days with only 2 out of 17 analysts covering the stock revising the estimates upward, and none lowering the projections. On a reported basis, including one-time items, quarterly earnings came in at 69 cents a share compared with 53 cents delivered in the prior-year quarter.

The shares of Tiffany rose 5.4% or $3.39 to $66.50 during pre-market trading.

Let’s Dig Deep

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Snapshot Report) and Zale Corporation , posted net sales of $872.7 million during the quarter, up 30% from the prior-year quarter, on the heels of – stellar performance of stores in Americas, Asia-Pacific, Japan and European regions, healthy comparable-store sales growth and new collection launches.

Total revenue also handily beat the Zacks Consensus Estimate of $787 million. Comparable-store sales climbed 28% in the quarter under review. In constant currencies net sales jumped 24% and comps grew 22%.

The jewelry market was hit hard by the recent global meltdown, which triggered a shift in focus to cheaper private label brands, but as the recession eased demand for luxury items also improved. Tiffany is well positioned to deliver robust sales and earnings growth. The company holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach.

By geographic segment, sales in the Americas grew 25% to $438.2 million, whereas comps rose 24% during the quarter; sales in the Asia-Pacific region surged 55% to $173.2 million and comps increased 51%; sales in Japan soared 21% to $142.5 million and comps grew by 22%; and sales in Europe climbed 32% to $101.3 million and comps rose by 25%.

In constant currencies sales in the Americas grew 24%, whereas comps rose 23% during the quarter; sales in the Asia-Pacific region surged 45% and comps increased 41%; sales in Japan advanced 8% and comps also grew by 8%; and sales in Europe climbed 17% and comps rose by 11%.

Other sales surged 46% to $17.4 million, reflecting rise in the wholesale sales of end goods to independent distributors.

Gross profit for the quarter jumped 33% to $514.7 million, whereas gross margin expanded 120 basis points to 59%. Operating income climbed 24% to $140.5 million, but operating margin shriveled 90 basis points to 16.1%.

Stores Update

Tiffany now plans to open 17 stores in fiscal 2011 with 6 in the Americas, 3 in Europe and 8 in Asia-Pacific.

As of July 31, 2011, the company operated 236 stores (98 in the Americas, 55 in Japan, 52 in Asia-Pacific and 31 in Europe).

Other Financial Details

Tiffany repurchased 330,000 shares at $74.29 each, aggregating $24.5 million during the quarter. In the first half, the company bought back approximately 783,000 shares at $67.00 each totaling $52.5 million.

In January 2011, Tiffany announced a new share repurchase program, overriding the previous program. The new program, which is set to expire on January 31, 2013, authorizes the company to buy back up to $400 million of shares. As of July 31, 2011, the company has approximately $340 million at its disposal for future buy backs.

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $565.2 million, and total short-term and long-term debt of $693.7 million, reflecting 29% of shareholders’ equity compared with 40% in the prior-year.

Management Guided

Tiffany, a high-end jewelry designer, manufacturer and retailer, raised its fiscal 2011 earnings guidance on the back of stronger-than-expected results. Tiffany forecasts earnings in the range of $3.65 to $3.75, reflecting a growth of 25% to 28%.

The current Zacks Consensus Estimate for fiscal 2011 is $3.55 per share, which is below management’s guidance range. Following an increased outlook, a positive sentiment may be palpable among the analysts, and we could witness a rise in the Zacks Consensus Estimates in the coming days.

Earlier, management had forecasted earnings in the range of $3.45 to $3.55 per share.

Tiffany now anticipates a high-teens percentage rise in total net sales for fiscal 2011. Management expects a high-teens percentage increase in sales in the Americas, approximately 30% rise in the Asia-Pacific, about 20% in European regions, and a high-single digit percentage jump in Japan. Other sales are projected to soar by 25%.

Management anticipates capital expenditures of approximately $250 million for fiscal 2011.

Currently, we have a long-term Outperform rating on the stock. However, Tiffany holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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