March Retail Bulletin

RAPAPORT…
Brutal Cold Helps Drive January Sales

Chain store sales in the United States for January 2007 rose 3.7 percent, which was slightly above the growth rate the International Council of Shopping Centers had predicted earlier. Luxury retailers led the way, with January sales in that category gaining 11.2 percent, while discount chains and wholesale clubs experienced a 2.6 percent lift in sales.

The International Council of Shopping Centers concluded that with the onset of harsh winter weather during the month in all states except for Florida, as well as with Christmas 2006 gift card redemption, retailers were able to move winter inventories. “We expect comparable store sales to increase by 3 percent for February as retailers continue to clearance out their winter-related items to make room for spring merchandise,” remarked Michael Niemira, chief economist at the International Council of Shopping Centers. Percentage comparisons are with the same month of 2006.

Signet U.S. Sales Stand Out

Signet Group reported that same-store and total sales for its fourth quarter ended February 3, 2007, increased 4.2 percent and 5 percent to £745.6 million ($1.46 billion), respectively. In the United States, Signet’s same-store sales grew by 5.4 percent and total sales by 5.2 percent to £550.4 million ($1.07 billion). In the United Kingdom, the group’s same-store sales improved 1.5 percent and total sales were 4.3 percent higher at £204.2 million ($400 million).

For its 2006 fiscal year, Signet’s total sales increased 8.1 percent to £1.89 billion ($3.7 billion) and same-store sales were up 4.8 percent. Sales in the U.S., which account for around 75 percent of group sales, advanced 10 percent to £1.41 billion ($2.76 billion), while sales in the U.K. rose 2.8 percent to £483 million ($946 million). Comparisons are with the previous year and previous corresponding quarter.

Zale’s Sales Improve

Zale Corporation’s same-store sales and total revenues for the second quarter of its 2007 fiscal year (FY) rose 1.4 percent and 1.1 percent to $1 billion, respectively. Reflecting the robust second quarter that ended January 31, 2007, the company’s FY-to-date total revenues have increased 1.1 percent to $1.43 billion.

When taking into account adjustments made for derivative accounting under SFAS 133 and a change in methodology in revenue recognition for lifetime jewelry protection plans sold during the quarter, Zale’s net profits for the period eased 1.9 percent to $94.8 million. Without the adjustments, profits were flat at $88 million. Comparisons are with the previous corresponding quarter and half-year.

Betsy Burton, Zale’s chief executive officer, noted that the Zales brand registered its first operating earnings increase in four years. “Customers reacted favorably to our expanded assortment in our core diamond fashion and bridal categories as well as our marketing repositioning,” she said.

Bulgari Jewelry Sales Grow

Luxury jeweler and watch company Bulgari recorded an equivalent 10 percent hike in sales in 2006 — at current exchange rates — to $1.31 billion. The group anticipates annual net profit growth of more than 12 percent. Net income for 2005 was approximately $150 million (€116.5 million). Jewelry sales grew 9.1 percent in 2006 to $519.6 million and sales for the company’s watch division were 7.9 percent above those of the previous year, which Bulgari attributed to the outstanding results of the Daniel Roth and Gerald Genta brands.

For its fourth quarter ended December 31, 2006, Bulgari posted jewelry sales totaling $167.6 million, up 9 percent. However, the watch segment fell 7.3 percent, suffering from a difficult comparison base with year-end 2005 — a 16.2 percent growth rate — when the category benefited from the Assioma launch. Overall group sales increased 4 percent for the quarter to $420 million. Comparisons are with the previous corresponding quarter of 2005 and with 2005.

LVMH Jewelry Profits Soar

Luxury retailer group LVMH Moët Hennessy Louis Vuitton’s watches and jewelry business unit delivered 26 percent growth in sales for 2006. Revenue for the product division, which includes diamond sales, reached $968.1 million (€737 million), while the segment’s net profit soared 281 percent to $105 million. The company’s overall net earnings for 2006 increased 16 percent to $4.16 billion (€3.17 billion) on the back of total sales of $20 billion (€15.3 billion), up 10 percent.

According to an LVMH statement, TAG Heuer again expanded its worldwide market share, with the brand’s Aquaracer and Carrera lines performing strongly. Zenith gained ground in the United States, Europe and in Asia and had a successful introduction of sports line Defy. Montres Dior continued its development, driven by the success of its Christal line. Chaumet opened its flagship store in Hong Kong and has strengthened its distribution network in Europe. And De Beers/LVMH had revenue growth in Japan, the United Kingdom and the United States.

Finlay Sales Slide

Department store jewelry counter operator Finlay Enterprises’ total sales slid 18.6 percent to $343.1 million for the fourth quarter of its 2006 fiscal year (FY). However, same-store sales for the same quarter, which ended February 3, 2007, improved 3.2 percent, with this result including sales from Belk stores. Excluding Belk in the fourth quarter, Finlay same-store sales were up by only 1.4 percent. Finlay will no longer operate at Belk as of the beginning of the first quarter of its 2007 FY. For the full 12 months of its 2006 FY, Finlay’s group sales slipped 7.1 percent to $919.4 million. Same-store sales for the year rose 8.2 percent, but only 2.1 percent when taking into account all counters Finlay will no longer be operating in the 2007 FY.

One of the main factors on which Finlay blamed the disappointing fourth quarter result was the poor performance across former The May Department Stores Company doors, which were transferred to the Federated Department Stores’ brands Macy’s and Bloomingdale’s during 2006 after the merger between Federated and May in late August 2005. “In addition, gross margin was significantly impacted in the fourth quarter by larger than expected LIFO [Last In, First Out accounting] charges, higher gold costs and lower than anticipated vendor concessions,” Finlay disclosed. LIFO is a non-cash component of gross margin, which was estimated at $4.4 million or triple the previous corresponding quarter’s figure.

“We consider 2006 and 2007 to be transitional years for our company, as we absorb the impact of store closings and at the same time position ourselves to be a larger player in the specialty jewelry store sector,” commented Arthur E. Reiner, Finlay’s chairman and chief executive officer. “The loss of approximately $300 million of sales on an annualized basis from department store consolidations has impacted us in several areas, particularly gross margin.”

Birks & Mayors Sales Up

Birks & Mayors reported that its same-store sales rose 3 percent for the third quarter of its 2007 fiscal year. In addition, group sales for the quarter ended December 30, 2006, increased 4.3 percent to $114.7 million and profits climbed 25 percent to $19.6 million.

Blue Nile Posts Solid Quarter

Online diamond retailer Blue Nile had a solid final quarter to its 2006 fiscal year (FY) with sales and net income advancing 24 percent and 8.8 percent, to $90.7 million and $5.75 million, respectively. For the full 12 months of the FY, Blue Nile’s total sales of $251.6 million converted into a growth rate of 28 percent, while its net earnings were virtually steady at $13.06 million. Comparisons are with the same quarter of the previous year and the 2005 FY. Blue Nile’s board of directors promoted Diane Irvine to the position of company president. Irvine will be responsible for day-to-day operations and will hold her current title of chief financial officer until a successor is found.

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