This is a summary of the second quarter fiscal 2007 earnings call conducted by Tiffany Co. (TIF: chart) on August 30, 2007.

Management:
Vice President of Investor Relations: Mark Aaron
Executive Vice President and Chief Financial Officer: James Fernandez

Key Investor Issues

- Net income for the quarter dropped to $37 million, or 26 cents per share, from $41.1 million, or 29 cents per share in the year-ago period.
- Revenue rose 20% to $662.6 million from $554.7 million last year.
- Same-store sales rose 17% in the U.S. and 7% on a constant-exchange-rate basis internationally.

Second Quarter Highlights

Sales growth was geographically broad based around the US and in most international markets.

- Total sales rose 19% and worldwide comparable store sales rose 13% on a constant exchange rate basis.
- Product sales growth continued to be stronger at higher price points, but the company also achieved quite acceptable growth in categories at more moderate price points.
- Gross margin was seven-tenths of a point below the prior year, but the strong sales growth provided substantial leverage on costs and enabled the company to improve the expense ratio by 3 full points from last year.
- All of this led to Tiffany’s earnings from continuing operations increasing by 41%, which was better than expected.

Tiffany had entered into an agreement to sell Little Switzerland, which generated a one-time charge to earnings.

As a result, net earnings of $37 million were 10% below the prior year, and the 26 cents diluted earnings per share was down from 29 cents in the prior year.

US retail sales increased 20% due to higher spending per transaction as well as some increase in the number of transactions.

Overall the company’s price stratification analysis indicated substantial sales growth at higher price levels. However, while the largest percentage growth was in sales over $50,000, the company saw growth in all price strata, including those under $500. But there were stronger growth in sales and transactions as the company moved up the price ladder.

Diamond jewelry sales in the US were a stand-out category.

Engagement jewelry sales alone were up more than 25% in the quarter, which leads the management to believe that Tiffany is increasing its market share by out-performing industry growth and most competitors. Many of the company’s other diamond jewelry categories also performed strongly in the quarter.

In the US the company saw a healthy growth in silver jewelry, highlighted by new silver charms.

Designer jewelry sales also rose nicely, paced by the success of Frank Gehry designs, but also by solid growth in the designs of Jean Schlumberger and Paloma Picasso. Table top sales continued to decline and watch sales rose modestly.

US same-store sales rose by a strong 17%, which was well above the company’s high single-digit expectation and was on top of a 5% increase in last year’s second quarter.

US same-store sales were strong throughout the quarter with a 20% increase in May, on top of a 6% increase in the prior year, a 10% increase in June, on top of an 8% prior year increase, and a 22% increase in July, which compared with the 1% decline in July 2006.

From a regional perspective, sales surged 31% in the New York flagship store, on top of a 5% increase last year, which partly reflected strong sales to foreign tourists as well as the likely benefit from the store renovation that was completed last September.

Same-store sales rose 2% in the 7 brand stores in the New York market.

- Looking around the US, sales for all comparable brand stores increased 14% in the quarter, on top of a 4% increase last year.
- Most stores performed well but the stores with noteworthy increases were in Boston, Orlando and Palm Beach Gardens, Houston, Beverley Hills and Bellevue, Washington.
- It was only in the Pacific region of Hawaii and Guam where the company saw continued albeit modest sales decline.