The firm continues to be pleased with the developing businesses in Canada with very successful stores in Toronto and Vancouver, and in Mexico where it operates six locations. Internationally, the firm added a net of 11 new stores and boutiques in 2007, representing an 11% increase in retail locations and a 7% increase in square footage. The firm’s plan is to accelerate that pace in 2008 with quite a few new stores and boutiques planned for Europe, Asia-Pacific, and Japan.

Direct Marketing

The direct marketing channel experienced a sales slowdown in the fourth quarter. Sales declined 1% in the quarter compared with a 10% increase last year but rose 5% for the year on top of an 11% increase in 2006. The number of orders was up in both periods but the average order size fluctuated.

For the full year, the average direct marketing order of $233 was virtually unchanged from $231 in the prior year. The firm relaunched its website in 2007, with enhanced functionality and graphics and it is pleased with the customer reaction. The company also increased the frequency of e-mail communications to customers. Conversely, it reduced catalog mailings by about 10% in the year, although its current plan is to modestly increase circulation in 2008.

Tiffany''s Internet business has grown dramatically with high profitability since being launched in 1999. E-commerce sales of more than $150 million in 2007 represented roughly 80% of the direct marketing channel. E-commerce nicely complements the firm’s retail store presence while also acting as an effective marketing communications tool.

Other Channels

The sales in the other channel rose 9% in the fourth quarter and 64% in the year. In both periods, the growth mostly came from increased wholesale sales of rough diamonds acquired through the firm’s diamond sourcing program and subsequently determined to not meet its quality standards. Sales in Iridesse stores increased in the year due to new store openings but did not meet the company’s expectations.

Fiscal 2008 Outlook

- For 2008, the firm is planning almost a 15% increase in a number of worldwide locations and a high single digit increase in square footage, as it accelerates the pace on the international side to take advantage of opportunities in a number of new and existing markets.

- The firm continues to expect a 10% increase in worldwide net sales in 2008, coming from a low single digit increase in the U.S. same store sales, which reflects the current difficult environment, and a mid single digit increase in international same store sales, which will range from minimal growth in Japan to considerably stronger growth in Asia-Pacific, outside Japan, and in Europe. The firm is also expecting a meaningful contribution from the new stores. The company is also planning direct marketing sales to increase by a mid single digit percentage for the full year and sales in other channel to increase by a low single digit percentage in 2008.

- It’s difficult for the company to improve its operating margin in the present environment and it is looking for operating margin in 2008 to be approximately equal to last year.
- The firm will not attempt to forecast the direction of precious metal or diamond costs but it is modestly benefiting from its zero cost collar hedging program that covers a portion of its platinum and silver needs for internal manufacturing.

- The firm expects other expense net of approximately $20 million in 2008 and an effective tax rate of approximately 36% to 37%.
- The firm is forecasting net earnings to grow by 5% to 9% and an 11% to 15% increase in diluted earnings per share to a range of $2.75 to $2.85 for 2008, which consists of an increase to its previously issued guidance of $2.50 to $2.55 per share because of better than expected 2007 results, as well as the benefit from changing its inventory valuation from LIFO to the average cost method. This compares with $2.47 in 2007, which is adjusted for the various one-time items and the conversion from LIFO to the average cost method.

There was no questions and answers section to this earnings conference call.