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Tiffany’s position with Davidson Kempner gets lowered

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Davidson Kempner and Tiffany

Davidson Kempner Capital Management added new positions in Shire Plc (SHPG), Alibaba Group Holding (BABA), and CBS Corporation (CBS). It exited positions in The Walgreen Company (WAG), Yum! Brands, Inc. (YUM), and Starbucks Corporation (SBUX). The fund added to its positions in Signet Jewelers Limited (SIG) and Allegion Plc (ALLE). It lowered its stakes in Lamar Advertising Company (LAMR) and Tiffany & Co. (TIF).

Davidson Kempner lowered its position in Tiffany & Co. (TIF), which accounted for 0.68% of the fund’s 3Q14 portfolio.

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About Tiffany & Co.

Tiffany & Co. (TIF) operates jewelry stores and manufactures products through its subsidiary corporations. Its principal subsidiary is Tiffany and Company. The company operates Tiffany & Co. retail stores in the Americas, Asia-Pacific, Japan, and Europe, as well as in the United Arab Emirates and Russia. It also engages in direct selling through the Internet, catalogs, and business gift operations.

Tiffany’s sales growth beats estimates

For the second quarter, Tiffany & Co. reported strong sales growth that beat consensus estimates. Worldwide net sales increased by 7%, to $993 million, due to growth in the Americas and Asia-Pacific regions. Net earnings rose 16%, to $124 million, or $0.96 per diluted share, compared with $107 million, or $0.83 per diluted share, in last year’s second quarter. Sales growth and a higher gross margin drove the increase.

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Net sales by region

In the Americas, total sales rose by 9%, to $484 million, in the second quarter. This reflects geographically broad-based growth across most of the region. Comparable store sales were also up by 8% in 2Q14.

In the Asia-Pacific region, total sales increased 14%, to $237 million, in the second quarter due to strong growth in Greater China and Australia.

In Japan, total sales dropped 13%, to $119 million, in the second quarter due to a decline in customer demand. This followed strong sales growth in the first quarter. Customers upped their spending before an increase in Japan’s consumption tax could take effect on April 1, 2014. According to Tiffany’s management, after a substantial sales decrease in April, the company experienced sequentially smaller monthly sales declines during the second quarter.

In Europe, Tiffany’s total sales increased 8%, to $120 million, in the second quarter. Comparable store sales declined 8%, reflecting weak performance in the United Kingdom and most of continental Europe. Sales from other regions rose 28%, to $33 million, in the second quarter. Retail sales grew as a result of the opening of the first company-operated Tiffany & Co. store in Russia. Comparable store sales grew by 2% in the United Arab Emirates.

As of July 31, 2014, Tiffany & Co. operated 293 stores, compared to 277 stores the previous year.

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In March 2014, the company’s board of directors authorized a new program to repurchase up to $300 million of  the company’s common stock over a three-year period that expires in March 2017. Tiffany & Co. spent approximately $9 million in the second quarter to repurchase 102,000 shares of its common stock at an average cost of $90.98 per share.

Improved outlook

For the fiscal year ending January 31, 2015, Tiffany & Co.’s management forecasts net earnings in the range of $4.20 to $4.30 per diluted share. Previously, management had forecast $4.15 to $4.25 per diluted share. This improved guidance will be achievable if worldwide net sales increase by a high single-digit percentage and operating margins increase on a higher gross margin. Tiffany & Co. plans to open ten company-operated stores and close three existing stores each in the Americas, Asia-Pacific, and the United Arab Emirates.

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