The analysis of customer mix indicated broad customer demand in the quarter.

- The majority of the US retail sales increase came from local customers, but there was also a sizeable increase in sales to foreign visitors.
- New York flagship store alone served almost half of those foreign visitors including a significant number of European shoppers who are enjoying the benefits of strong currency.

The new stores that opened in the US over the past year are performing very well, and the management believes that the company is on schedule to open six additional stores in the second half of the year, in Providence, Rhode Island, Natick, Massachusetts, Santa Barbara, California and Red Bank New Jersey, as well as a second store in Las Vegas, Nevada which opens tomorrow and a store right here in Manhattan at 37 Wall Street.

Tiffany’s achieved excellent results in the majority of our international markets which more than offset softness in Japan.

International retail sales increased 16% in the quarter, on a constant exchange rate basis which excludes the effect of translating foreign currency denominated sales into US dollars, international retail sales rose 17% and comparable store sales increased 7%.

Similar to product trends in the US, international sales except in Japan, were driven by growth in a wide range of categories including diamond jewelry and engagement jewelry as well as silver jewelry and designer jewelry.

Total retail sales in Japan declined by 1% in the quarter, as an increase in average price per unit sold was offset by a decline in units.

- While there was some sales growth in Fine and Engagement jewelry, there was a decline in name designer jewelry sales.
- Comparable store sales declined 6% which was below the company’s expectation calling for a modest decline and compared with the 2% increase last year.
- By month, comps in Japan declined 10% in May on top of a 4% increase in the prior year, comps declined 7% in June on top of a 6% increase in the prior year, and comps declined 1% in July, versus a 4% decline last year.

Geographically, comps store sales declined 3% in Tokyo including a 2% decline in our Ginza flagship store, while comps declined 7% in locations outside Tokyo.

The average yen rate of 122 to the dollar in the quarter was weaker than the rate of 114 in last year’s second quarter, which meant that there was a negative effect from translating Japanese sales into dollars. Specifically the 1% decline in total Japan retail sales in yen translated into a 7% decline in dollars.

Despite the sales softness in Japan, the management continued to believe the company is progressing from a customer development perspective as it expands its relationships of key department store clients, and further develop the base of Tiffany Register clients in Japan.

Tiffany’s is also introducing a number of new products into Japan with a particular focus on stimulating sales in the silver jewelry category and giving it appropriate marketing support.

The company continues to be active on the real estate side in Japan. This year Tiffany’s has opened several new locations including boutiques in the Seibu Department Store in Tokyo’s Shibuya district, in the Takashimaya Department Store in Tokyo’s Shinjuku district, and in the Fukuya Department Store in Hiroshima.

Earlier this year the company closed boutiques in Mitsukoshi stores in Hoshigaoka and Okinawa. The company has announced plans to expand its presence with a new Tiffany for Men concept in the Isetan Department Store in Shinjuku later this year, and plan to add a third location in Nagoya in the Matsuzakaya Department Store.

Outside of Japan, the company benefited from very strong results in other international markets.

In the rest of the Asia-Pacific region Tiffany’s posted a 24% comp increase in the quarter, coming from sizeable increases in most markets, and especially in Hong Kong which is benefitting from substantial numbers of Chinese travelers. This 24% comp growth increase was much greater than the low double digit increase that the company expected and was on top of a 27% comp increase in last year’s second quarter.

The management is pleased with performance in the new locations opened this year in Seoul, Korea and in Singapore’s Changi airport, and two days ago Tiffany’s opened a second store in Macau at the new Venetian Macau resort. The company also has plans to open additional stores in Malaysia and Hong Kong in the second half of the year.

In Europe the company had a 23% same-store sales increase in the quarter, which was better than the expected mid-teens increase and was on top of a 17% growth last year.

- Broad-based growth in Europe was led by the four stores in London, including a substantial increase in the flagship store in old Bond Street. In July Tiffany’s anniversaried the completion of that store’s major renovation and expansion.
- While London generates more than half of the company’s European sale, Tiffany’s also saw strong sales growth in most continental European markets.
- Despite the substantial numbers of European visitors shopping at Tiffany stores in the US, there’s also plenty of demand from Europeans in their home market.
- The company opened a store in Hamburg, Germany during the second quarter, and in the coming months plan to add a fifth store in London, and a fourth store in Italy, in Bologna.

The company is pleased with Tiffany’s results in the other Americas.