Jewellery's web blog

Department store retailer Kohl’s Corp. said earnings fell 12.3% in the recent quarter, but still beat analysts’ frank gehry on the strength of its inventory management and sales of higher-margin private label and exclusive brands.

Kohl’s also raised its earnings guidance for the full year on Thursday.

The Menomonee Falls-based chain store said net income fell to $236.0 million, or 77 cents a share, from $269.2 million, or 83 cents a year ago. The results beat the estimate of analysts by 4 cents a share.

Sales rose 3.8% for the three months ended Aug. 2, to $3.73 billion from $3.59 billion.

The company said it would pull back on store openings in 2009, planning about 50 new stores and 60 remodelings of existing stores. Chairman Larry Montgomery told analysts that the conservative plan allows Kohl’s to increase the number of new stores if attractive real estate becomes available after Christmas.

This year, Kohl’s will open 75 stores, including 47 this fall.

“I think it’s smart of them to cut back,” said Stephanie Hoff, an analyst for Edward Jones. Hoff said she tiffany bracelets pleased with Kohl’s results Thursday, and that the company was doing well compared to the competition.

On a comparable-store basis, Kohl’s sales were down 4.6% for the quarter. The accessories and men’s departments turned in the best performance for the quarter, particularly sterling silver jewelry and men’s socks, President Kevin Mansell said during a conference call with analysts. Sales were slowest in the soft home area, which includes bedsheets and towels, he said.

As a result of the performance, Kohl’s raised its earnings guidance for the full year to a range of $3.02 to $3.18 a share from its earlier guidance of $2.95 to $3.15 a share.

Analysts were expecting the company to earn $3.07 a share for the year.

In the current quarter, same-store sales are expected to decline by 2% to 4%, Mansell said. August will be the most difficult month of the quarter because of tough comparisons to last year.

Earnings for the third quarter are expected to be between 51 cents and 56 cents a share, Montgomery said. tiffany on sale had been expecting earnings of 57 cents a share.

For the fourth quarter, Montgomery said sales are expected to decline by 2% to 4% on a same-store basis.

Mansell said store inventory was down 15% at the end of the quarter, and clearance inventory declined by nearly 30%. Those levels were achieved with some steep discounting of seasonal merchandise, he said.

For the coming holiday season, Mansell said, Kohl’s plans to be competitive by offering value. The higher profit margins that come with private label and exclusive brands will allow Kohl’s to offer low prices and still make money, he said. Private and exclusive brands make up about 42% of Kohl’s sales, he said.

Before earnings were announced Thursday, Kohl’s shares closed at $48.27, a gain of 68 cents.

NEW YORK-Sales growth declined for retail jewelers in 2007, with even high-end tiffany cufflinks feeling the slow-down, according to Jewelers of America’s (JA) 2005 Cost of Doing Business Survey.

The survey showed that overall sales for retail jewelers declined 0.3 percent in 2007, a drop-off from the 4.1 percent sales growth reported in 2006.

Industry analyst Ken Gassman says the figures do not denote a bad year, just a falloff from the previous 12 months and a dip in the natural cycle. The industry stayed at a relative high in 2006, but returned to earth in 2007.

David Peters, director of education for JA, agrees.

“It’s a cyclical business,” Peters says.

In terms of industry impact, the current U.S. mortgage crisis and high gas prices mirror what happened in 2001 and 2002, when Sept. 11 and the dot-corn crash triggered a major economic slowdown and flat jewelry sales.

“What’s going into the gas tank is not going into luxury items,” Peters says.

Across-the-board slowdown

Breaking the survey down by store category shows that independent high-end stores (with median per-tiffany pendants net sales of $2.4 million) experienced 3.5 percent sales growth, second only to designer/artist/custom stores, which reported 6.1 percent sales growth.

However, this represents a significant slowdown when compared to 2006, when sales grew 7.4 percent for independent high-end stores and 6.5 percent for designer/ artist/custom shops.

Experts say it’s proof that the economic slowdown is stretching to jewelry’s top-tier players and that American consumers who might have bought 5-carat diamonds two years ago are now purchasing 3-carat stones as then- stock market portfolios dwindle.

“They’re just spending a little less on jewelry,” Gassman says.

Independent mid-range stores with sales below $1 million saw the steepest decline in sales, a median 6.6 percent drop from 2006, compared to a 1 percent sales decrease for independent mid-range stores doing $1 million-plus in annual sales.

Overall, sales for independent mid-range stores fell 1.7 percent while sales for chain stores grew 2.5 percent.

Gassman attributes the chains’ higher growth rate to marketing clout and the tendency of independent retailers to pull back on marketing spend when times get tough. He suggests mid-range independent retailers loosen their purse strings and implement marketing programs that target return clients.

“They’re your best customers,” Gassman says. “It’s very difficult to bring a new customer into your store in a recessionary period.”

Jewelers looking to do this might take a cue from Girardin Jewelers, a high-end store in Valdosta, Ga., which implements direct marketing campaigns once or twice a year. Sales associates also always send out thank-you notes and conduct follow-up with customers, says store manager Paxton Morris.

At the beginning of each month, store employees call customers to remind them of upcoming birthdays or tiffany earrings special events, keeping Girardin on customers’ radars.

Margin drop causes complex

The survey shows that overall, margins slipped to 48.7 percent in 2007 after rebounding to 49.1 percent in 2006.

Independent high-end stores saw margins improve though, from 42.9 percent in 2006 to 45.2 percent in 2007.

Chain stores saw margins slip, from 49.1 percent in 2006 to 46.7 percent in 2007, while margins for independent mid-range stores held nearly steady at 50.8 percent, from 50.9 percent in 2006.

Gassman says a combination of factors, not just one, contributed to the margin drop, including the cost of precious metals pushing up the price of goods-increases retailers felt unable to pass on to consumers due to the flagging economy. In addition, slow sales might have prompted retailers to up price-based promotions, offering perhaps 55 percent merchandise discounts instead of 50 percent.

For all of the firms surveyed, on an item-by-item basis, gross margins rose in the following categories: loose diamonds, diamond jewelry, colored stone jewelry, cultured pearl jewelry, timepieces and platinum, for which margins increased from 50 percent in 2006 to 51.6 percent in 2007.

Margins fell for karat gold jewelry, declining from 55.1 percent in 2006 to 54.7 percent in 2007. Another notable shift in this year’s TA survey was in the category of retail location.

In 2006, 23.6 percent of respondents operated freestanding stores, but by 2007, that figure grew to 32.5 percent, meaning the stand-alone jewelry store now dominates for independents.

“That seems to be where the consumers are and where the successful retailers are,” Gassman says.

The survey also compares the business practices of high-profit jewelers to those of low-profit jewelers, revealing that while the two sell essentially the same product mix, the differences are in the details.

For example, high-profit jewelers tend to have one fewer employee and a slightly smaller store, which lowers occupancy and payroll expenses, Gassman says.

Survey data shows that the median low-profit jeweler employs 6.5 staffers in a 2,200-square-foot store and spends 20.3 percent of annual sales on payroll and 5.9 percent on occupancy. Meanwhile, median highprofit jewelers, employ 5.5 staffers in a 1,775-square-foot space and spend 20 percent of sales on payroll and 4.9 percent on occupancy.

Gassman says the survey shows that there is not one single thing high-profit jewelers do better; instead, it’s a matter of doing “a thousand things 1 percent better.”

“They look at every expense line item and ask themselves, ‘How can I make this more efficient?’” he says.

Susan Eisen of Susan Eisen Fuie Jewelry and Watches does just that every time there’s a break in the tiffany necklaces at her El Paso, Texas, store. One recent improvement she implemented is a specific procedure for repairs whereby staffers should attempt a sale with every repairs customer.

Recently, a woman who visited the store for a watch battery was shown a $4,000 diamond tennis bracelet to go with the watch. She loved it and her fianc茅 soon returned to purchase it for her.

“It works a lot more than you would think,” Eisen says.

BEIJING, September 15, SinoCast — Total retail sales of consumer goods reached CNY 876.8 tiffany earrings in August 2008 and CNY 6.8439 trillion in the first eight months, rising 23.2% and 21.9% from the period last year, according to news by the National Bureau of Statistics of China on September 12.

In detail, the retail sales in urban areas grew 23.9% year on year to CNY 601.5 billion and the figure for county & below-county areas increased 21.8% to CNY 275.3 billion.

The wholesale & retail sectors, hotel & catering sectors, and other industries respectively generated retail sales of CNY 736.1 billion, CNY 124.5 billion, and CNY 16.2 billion, leaping 23.2%, 26.3%, and 2.6% from a year ago.

As for different commodity categories, the retail sales of foodstuff, clothing, and utilized commodities (above designated size of wholesale and retail trades) jumped 20.3%, 27.6%, and 27.4%.

Specifically, the retail sales of grain & oil up 23.1%, meat, poultry, and tiffanys 26.7%, garments 29.5%, cultural and offices appliances 13.3%, sports and recreation commodities 10.1%, goods for daily use 20.8%, home appliances and video products 18.6%, furnishings 24.2%, cosmetics 26.6%, gold, silver, and jewelry 44.3%, telecommunication equipment 4.5%, automobiles 19%, petroleum and the products 49.4%, building and decoration materials 9.5%.

The global credit crisis is starting to squeeze India, threatening in particular a hallmark of its new Tiffany 1837 cuff class: the property market.

Property prices have been dropping, mortgage rates rising and consumers turning cautious. In this climate, and during a big festival season, some developers are anxiously dangling inducements before would-be buyers, from free parking and jewelry vouchers, to a new BMW for the purchase of a luxury flat selling for some $600,000. Yet, even the free cars aren’t driving sales.

“At this point in time, they are pretty bad,” Ashutosh Narkar, a real-estate analyst with HSBC Bank in Mumbai, says of the prospects.

Among developers, the concerns are cash flow and credit access. With sales of residential properties falling, developers can no longer rely on presales to generate revenue.

Banks are become increasingly risk averse. Developers are borrowing at rates in the range of 20% to 25%, according to analysts.

Projects that haven’t yet been marketed are being put aside, or sold, said Kushagr Ansal, a director at Ansal Housing & Construction Ltd., a big Indian developer based in New Delhi.

“The entire market is facing a capital crunch,” added Anshuman Magazine, chairman and managing director for South Asia for real- estate consulting firm CB Richard Ellis.

About two years ago, Arvind Dhingra put down a deposit on a property in Gurgaon, the technology hub just outside New Delhi.

The 38-year-old restaurateur hoped to sell it as the market surged higher. But prices have frank gehry since then and aren’t likely to turn around soon.

“I gambled and I lost,” he said.

It isn’t just middle-class havens such as Gurgaon that are being hit. Property prices in India could fall by 25% to 30% over the next couple of years, according to Centrum Broking, a brokerage firm in Mumbai. A recent survey by Edelweiss Securities, also based in Mumbai, showed 90% of property brokers have reported a drop in transactions over the past month.

The downdraft is teaching many Indians a hard lesson in how interlinked their fortunes now are with the world economy. Until recently, India appeared more shielded than most from the global financial crisis.

The South Asian nation boasted one of the highest economic growth rates among major economies, a thriving middle class and a world-class tech sector.

Restrictive capital markets and a vast bureaucracy have protected Indians from dramatic global developments in the past.

Now, the credit crunch is catching many by surprise. The global economic gyrations are compounding property-market woes and rippling into other key areas of consumerism, from cars to overseas travel.

A crucial test of Indian consumption is under way. The holiday season surrounding Diwali, which began in late September and lasts about a month, is one of the biggest shopping periods of the year. Businesses are worried it could turn out to be a bust because of tight credit and slack consumer appetite.

“The truth will be really available over Diwali,” said Anuj Puri, chairman and country head of Jones Lang LaSalle Meghraj, the Indian arm of international property consultants, Jones Lang LaSalle.

India’s benchmark stock market index, the Sensex, ended Wednesday down dropped 3.1% to 11328.36 in Wednesday trading, its lowest close in more than two years. The Bombay Stock Exchange’s realty index is down some 70% since its peak in mid-January.

India’s jittery markets are damping consumer demand. Many in India are holding off Two Hearts triple bangle for big-ticket purchases, such as cars, according to Mr. V. Vaidyanathan, executive director of ICICI Bank, one of India’s biggest banks, who is responsible for retail banking amongst other areas.

“Consumers are saying, ‘let’s not borrow if we can avoid it,’” said Mr. Vaidyanathan.

A sharp downturn in the property sector would darken the outlook not only for India’s economy, but for other nations as well.

China sells more to India than any other country, including the U.S. Many other countries have counted on the rise of India’s middle class to help buy up their goods as well. India has a growing trade deficit, thanks due to a rising price of oil but also to the Western-style tastes of its younger, urban consumers.

Retailers reported dismal sales figures for December today as even Wal-Mart Stores Inc., one of frank gehry bright spots in the industry, finally buckled under the pressures of the deteriorating U.S. economy.

As the figures confirmed fears that the holiday season was the weakest since at least 1969, the malaise cut through practically all areas from kitchen gadget stores to jewelry purveyors and teen apparel retailers.

The deep discounts that began well before the official start of the holiday season spurred a number of merchants to cut their earnings outlooks, fueling more concerns about the health of the industry.

Among the many retailers that reported steep sales declines were Sears Holdings Corp., which operates Kmart and Sears stores, luxury retailer Saks Inc. and Gap Inc. But the biggest surprise came from Wal-Mart, the world’s largest retailer, which posted a smaller sales gain than what Wall Street expected and cut its fourth-quarter earnings outlook.

“This suggests that the lower income group is feeling the pinch more than we thought and this is clearly reflected in the lower-than-expected numbers at Wal-Mart,” said Ken Perkins, president of research company RetailMetrics LLC. “I think it says the economy is in more dire straits than we thought.”

The International Council of Shopping Centers-Goldman Sachs same-store sales tally dropped 1.7 tiffany bracelets for December, worse than the already reduced estimate for a 1 percent decline. That means that same-store sales for the November-December period dropped 2.2 percent, making it the weakest holiday period since at least 1969, when the index began.

For the calendar year, retail sales rose on average a modest 1 percent, the weakest year since at least 1970, according to Michael P. Niemira, chief economist at the ICSC. The tally is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer’s health.

Wal-Mart, blaming the weak economy and severe winter conditions, said that same-store sales rose 1.2 percent. Excluding the impact of declining gasoline prices at the pump, the gain was 1.7 percent. Analysts surveyed by Thomson Reuters had expected a 2.8 percent increase, excluding fuel.

“The current economy remains challenging for all businesses, and retailers have already seen customers pull back on discretionary spending,” Wal-Mart’s Chief Financial Officer Tom Schoewe said in a statement. “Consumers are very focused on value and necessities.”

Wal-Mart noted that health and wellness items were the categories that primarily fueled sales. Electronics sales were solid, while the apparel and jewelry business was weak.

Given the disappointing sales and higher-than-anticipated expenses, Wal-Mart said it now expects to earn 91 cents to 94 cents per share in the fourth quarter from continuing operations. That’s down from its previous projected range of $1.03 per share to $1.07 per share. Analysts surveyed by Thomson Reuters expected $1.06 per tiffany on sale.

Discount rival Target Corp., which has been stumbling because its merchandise focuses more on nonessentials like trendy clothes, announced a 4.1 percent decline in same-store sales, better than the 9.1 percent drop that Wall Street analysts predicted.

Meanwhile, Costco Wholesale Corp. reported a 4 percent decline in same-store sales, but excluding the impact of lower gas prices and currency fluctuations, it actually posted a 4 percent gain. Lower gas prices are good for consumers, but reduce the sales volume for retailers like Costco.

Among department stores, Sears Holdings said its December same-store sales dropped 7.3 percent, weighed down by a 12.8 percent drop at domestic Sears stores. The company, whose brands include Kenmore and Craftsman, said Kmart same-store sales fell 1.1 percent.

Macy’s Inc. reported that same-store sales fell 4 percent in December, less than the 5.3 percent decline that analysts had expected. For the combined November-December period, same-store sales were down 7.5 percent. But the department store chain cut its fourth-quarter and full-year earnings outlook due to heavy markdowns and announced plans to close 11 underperforming stores. The chain operates more than 840 Macy’s stores.

J.C. Penney Co.’s same-store sales within its department store division fell 8.1 percent, better discount tiffany the 10.3 percent decline analysts had expected.

But luxury stores fared far worse as affluent shoppers sharply cut back on buying Gucci handbags and other status goods, spooked by the financial meltdown that led to massive layoffs on Wall Street and shrinking investment portfolios. Saks Inc. posted a 19.8 percent drop for the month, worse than the 10 percent decline Wall Street expected. Neiman Marcus Group Inc. suffered a 27.5 percent decline in same-store sales.

Limited Brands Inc. posted a 10 percent drop, larger than the 7.8 percent decline analysts predicted. The company also lowered its fourth-quarter earnings outlook.

Gap Inc. suffered a 14 percent drop in same-store sales, worse than the 9.3 percent decline that analysts had expected. It also cut its earnings outlook.

The company that makes moissanite, a shiny gemstone marketed as an alternative to Tiffany 1837 cuff, continues to get squeezed by falling sales.

Late Friday, Charles & Colvard reported that second-quarter sales dropped to $1.3 million, down 64 percent from the same period last year. Consumers hurt by the recession have cut back on spending, and Charles & Colvard’s retail customers are reluctant to order more moissanite.

The Morrisville company’s net loss was $1.19 million, compared with $1.08 million a year ago. Charles & Colvard has cut costs and laid off some workers to cut expenses.

The company is seeking a CEO with experience in the retail jewelry market, frank gehry CEO George Cattermole said in a prepared statement.

Shares closed at 49 cents, down 7 cents.

Credit: The News & Observer, Raleigh, N.C.

Next year, a sleek new Jaguar, starting at $72,500, is set to roll into showrooms on the discount tiffany of one of the worst economic downturns since the Great Depression.

Even though the economy has shed millions of jobs and financial markets have lost much of their value, Mahwah-based Jaguar Land Rover North America is betting well-heeled buyers will embrace the 2010 Jaguar XJ.

Luxury car sales have slumped in recent months. Jaguar, for example, sold 1,394 cars in July 2008, but only 783 cars were sold last month (though the company attributes the decline in part to strategy).

“Even the best, the most luxurious brands have been hit hard,” said James G. Hutton, a professor of marketing and communications at Fairleigh Dickinson University in Teaneck and Madison.

Consumers have been spending considerably less on luxury items overall this year, according to a report by the New York consulting firm Bain & Co., which has predicted luxury goods sales would fall by 10 percent. Among luxury items, Bain has forecast apparel would slide the most, followed by jewelry, watches, leather goods, shoes and accessories.

Still, there is hope for a rebound. Bain also predicts the market for luxury goods will again reach 2007 levels by 2012.

After sales of BMWs fell 28 percent in May from a year earlier, the pace of the decline slowed the next tiffany jewelry on sale, with a 20 percent drop in June, compared with the same month the previous year.

Luxury automobile sellers “are seeing a bottom, they think the worst has past,” said Milton Pedraza, chief executive officer of the Luxury Institute LLC, a New York-based consumer-research firm.

Marketing luxury cars successfully in an economic downturn is possible with the right pitch to the right people, Hutton said.

“Success breeds success,” he said. “Right now, especially, people want to know that this person is still successful, still stable through a down economic period. The [companies] that seem to be succeeding are the ones that are very creative about not destroying the brand but still offering better value in a recession.”

Jaguar attributes its sales decline to the nationwide drop-off in consumer spending, but also to a strategic shift toward reducing sales volume and increasing profits from more “exclusive” inventory aimed at high-net-worth buyers looking for more value in luxury items.

“We have exclusive volume at the end of the day. We don’t have thousands of cars sitting out in a port somewhere,” said Paul Faletti, vice president-marketing for Jaguar North America.

The company predicts the new XJ’s features — such as a nearly all-glass roof, high-definition touch-discount tiffany display, and a lighter body of recycled aluminum — will add value in the eyes of customers, even while the 2010 XJ’s starting MSRP is about $5,000 higher than the basic 2009 XJ’s price tag.

“They’re not going to give up luxury in most cases,” Faletti said.

Jaguar, owned by the India-based conglomerate Tata Motors Ltd., has been altering its cars’ designs, and has reportedly been attracting a younger demographic. For at least one model, the average new Jaguar buyer is 50 years old, whereas the average Jaguar owner is 60, Faletti said.

Dennis Squitieri, managing director of Bergen Jaguar in Paramus, said his dealership on Route 17 has seen a noticeable increase in interest and sales in recent months, especially compared with late 2008.

Last September, after the financial and labor markets tumbled into a tailspin following the collapse of the investment bank Lehman Brothers Holdings Inc., Jaguar sales dropped, Squitieri said.

“In September, they probably wouldn’t have wanted to flaunt” high net worth with a luxury-car purchase, Squitieri said.

Recently, however, Squitieri senses different sentiment from prospective car buyers.

“There’s always going to be people who are going to want to buy the big macher car,” he said. “The tiffany jewelry sale is going to get better. People are going to feel like they have permission to go ahead and buy luxury items.”

This article contains information from Bloomberg News.

“Since early 2008, the industry has made significant progress toward resolving technological issues, including charm bracelet femtocell interference with the macrocellular network and creating standards for multivendor interoperability,” notes Tim Kridel, research analyst with Unstrung Insider and author of the report. “There is still much to do on those fronts, but even if everything were resolved tomorrow, the lack of revenue-generating business models would still stand in the way of aggressive, widespread deployments.”

Femtocells face a few challenges in the market, which will hinder them from wide adaption/use through 2010, according to Kridel. “Wireless carrier, telco, and multiple system operator (MSO) orders for femtocells will remain few and small through 2010 because they are still hashing out their business models and watching to see how trials and the handful of commercial deployments are faring,” he says. “Wireless carriers are still trying to figure out how to use femtocells to sell new applications and services.”

Key findings of Femtocells: Market Outlook & Reality Check include:

– Industry-wide shipments could grow eightfold in 2010 to reach 4 million

units

– For telcos and MSOs, femtocells are a way to combat and leverage

wireline displacement and to go out of region

– Operators and vendors agree femtocells are still too frank gehry for wide

adoption

– Integrating femtocells into other devices, such as set-top boxes, does

not slash femtocell costs enough to spur large telco and MSO deployments

anytime soon

– Femtocells let wireless carriers reduce capex and opex – but not

immediately

Femtocells: Market Outlook & Reality Check is available as part of an annual single-user subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900 (single-user license).

To subscribe, or for more information, please visit: www.unstrung.com/insider. For more tiffany bracelets on all of Light Reading’s Insider services, please visit www.lightreading.com/research.

To request a free executive summary of the report, or for details on multi-user licensing options, please contact:

Jeff Claudino

Director of Sales

Insider Research Services

619-229-9940

claudino@lightreading.com

Press/analyst contact:

Dennis Mendyk

Managing Director

Insider Research Services

201-587-2154

mendyk@heavyreading.com

About Light Reading

Founded in 2000, Light Reading (www.lightreading.com) is the leading online media, research, and focused event company serving the $3 trillion worldwide communications market. Lightreading.com is the ultimate source for technology and financial analysis of the communications industry, leading the media sector in terms of traffic, content, and reputation. Light Reading’s research arms, Heavy Reading and Pyramid Research, provide the most comprehensive communications research, market data, and technology analysis in close to 100 markets around the world. Light Reading produces nearly 20 targeted communications events including TelcoTV, Ethernet Expo New York and Ethernet Expo London, The Tower Summit @ CTIA, and Optical Expo, as tiffany on sale as focused one-day events tailored for cable, mobile, and wireline executives. Light Reading was acquired by United Business Media in August 2005 and operates as a unit of TechWeb.

About TechWeb

TechWeb (techweb.com/aboutus), the global leader in business technology media, is an innovative business focused on serving the needs of technology decision-makers and marketers worldwide. TechWeb produces the most respected and consumed media brands in the business technology market. Today, more than 13.3 million* business technology professionals actively engage in our communities created around our global face-to-face events Interop, Web 2.0, Black Hat and VoiceCon; online resources such as the TechWeb Network, Light Reading, Intelligent Enterprise, InformationWeek.com, bMighty.com, and The Financial Technology Network; and the market leading, award-winning InformationWeek, TechNet Magazine, MSDN Magazine, Wall Street & Technology magazines. TechWeb also provides end-to-end services ranging from next-generation performance marketing, integrated media, research, and analyst services. TechWeb is a division of United Business Media, a global provider of news distribution and specialist information services with a market capitalization of more than $2.5 billion.

* 13.3 million business decision-makers: based on # of monthly connections

About United Business Media Limited

UBM (UBM.L) focuses on two principal activities: worldwide information distribution, targeting and monitoring; and, the development and monetization of B2B communities and markets. UBM’s businesses inform markets and serve professional commercial communities – from doctors to game developers, from journalists to jewelry traders, from farmers to pharmacists – with integrated events, online, print and business information products. Our 6,500 staff in more than 30 countries are organized into specialist teams that serve these communities, tiffany jewelry on sale buyers and sellers together, helping them to do business and their markets to work effectively and efficiently. For more information, go to http://www.unitedbusinessmedia.com.

OPERATOR: Good morning. My name is Julie Ann, and I will be your conference operator tiffany on sale. At this time, I would like to welcome everyone to the conference call discussing the fourth quarter and year-end results and September sales results.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Richard Galanti, Chief Financial Officer. Please go ahead, sir.

RICHARD GALANTI, CFO, COSTCO WHOLESALE CORPORATION: Thank you, Julie Ann, and good morning to everyone. This morning we reported our 16-week fourth quarter and 52-week fiscal year-end operating results for fiscal 2009, both ended August 30, as well we reported our five-week September sales results for the five weeks that ended this past Sunday, October 4.

As with every conference call, I will start by stating that the discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and that these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements.

The risks and uncertainties include but are not limited to those outlined in today’s call, as well as other tiffany jewelry on sale identified from time to time in the Company’s public statements and reports filed with the SEC.

To begin with our fourth quarter operating results for the quarter, we reported EPS at $0.85 a share, down 6% from last year’s reported Q4 EPS of $0.90. The $0.85 figure for this year’s Q4 also compares to First Call EPS estimate of $0.77 per share that was out there this morning.

As outlined in this morning’s release, both fiscal fourth quarters included the impact of certain items that complicate a little bit the quarter-over-quarter comparison. Last year’s fourth quarter included two items of note, a $32.3 million pretax, or $0.05 a share, LIFO charge and a $15.9 million pretax, or $0.02 per share, charge related to a litigation settlement. Together these two items impacted last year’s $0.90 reported Q4 results by $0.07 a share.

So excluding last year’s Q4 results would have been $0.97 a share. Conversely, this year’s fourth quarter results included a $16.6 million pretax, or $0.02 per share, LIFO benefit. So when you compare our Q4 over Q4 earnings results these three items, two of them negatively impacting last year’s fourth quarter results, and one helping this year’s fourth quarter results, represented a $0.09 per share year-over-year swing.

Now several other factors also impacted the comparison of this year’s Q4 results versus those of last fiscal year, and generally went the other way, ie, that is they represented a negative year-over-year impact. I’ll talk about some of these later but these include FX headwinds. Our foreign country earnings results when converted and reported in US dollars has hurt us all fiscal year since last fall when the US dollar greatly strengthened against many of the currencies with which we operate.

In the fourth quarter, we were hurt by a little over $21 million pretax or $0.04 a share after tax. That is assuming FX exchange rates were flat year-over-year, our foreign country operating results in Q4 when reported in US dollars would have been higher by that amount.

By the way, for the entire fiscal year, the impact of FX, assuming FX rates had remained constant, was to reduce our total Company reported sales by $2.42 billion and reduce pretax earnings by almost $95 million pretax or $0.14 a share after tax. This calculation simply takes the currency exchange rates for the prior fiscal year and assumed that they remained at those levels throughout fiscal 2009.

The next item, higher employee benefits costs mainly consisting of higher US healthcare expense, that discount tiffany about $0.04 per share negative impact in the fourth quarter. And when we say the $0.04 per share that’s what we estimated was above and beyond normal increases in those charges. I’ll talk further about this later in our discussion.

As you can see in our income statement, our income tax rate while lower than it had been over the last several years, was, in fact, higher year-over-year in Q4 and that had to do with the fact in that both quarters there were some discrete items that went our way, if you will, and, therefore, lowered the tax rate, but the tax rate this year was 35.5% in the fourth quarter, up from 34.5% last year. Not a big item, but, again, this represented a little over $0.01a share impact to this year’s fourth quarter results.

Two final items impacting our Q4 P&L, recall that gas profits in Q4 2008 and very much so in Q1 2009 during this time when gas prices were plummeting profits were great. This year’s Q4 gas profits were good, but nearly $0.04 a share lower than the year earlier Q4.

Lastly, in terms of year-over-year things that we believe looked like they stood out, with interest rates earned on investable cash balances down substantially from a year ago interest income this year in Q4 was $15 million pretax or $0.02 a share lower than a year ago. So you’ve got a $0.09 swing one way as I described in our press release, and you have about $0.15 swing the other way. All in all our results came in, I think, much better than many of you out there expected.

Earnings for the 2009 fiscal year came in at a reported $1.086 billion, or $2.47 a share compared to $1.283 billion or $2.89 in last year’s fiscal 2008. In terms of sales for the fourth quarter, we reported on September 3 our 16-week reported comparable sales figures and they showed a 5% decrease, a minus 6% in the US, and a minus 3% internationally as expressed in US dollars.

Excluding cash deflation and the impact of FX from the US dollar strengthening year-over-year, the minus 6% US comp would be a minus 1%. The minus 3% international comp, reported international comp, would be a plus 7%, and the minus 5% total Company comp for the fourth quarter would be a plus 1%.

Now we also reported this morning our September sales results for the five weeks of September which ended this past Sunday. These were with the US coming in at a reported minus 1%, international a reported plus 6%, and total Company, therefore, a reported plus 1%. Again, you still have throughout this year, it will soon be anniversarying, but the impact of gas deflation and FX.

For the five-week September period the minus 1% reported US comp would be plus 3%, but — and that’s without the roughly 3.5% impact of gas deflation. Given the US dollar’s relative strength vis-a-vis other currencies in the past month, our reported 6% international comp would have been plus 9% if expressed in local tiffany jewelry sale. Excluding gas and FX, our reported 1% plus September comp for total Company would be a plus 4%.

A couple of other comments on September sales results. The reported plus 1% comp sales result was comprised of a 6.5% plus traffic increase. That’s helped a little bit by week one of the five-week period with the shift in Labor Day. If you look back over the last nine weeks of August and September, the combined traffic increased, so taking that impact of how Labor Day fell was a 5.5% increase in traffic on average over the nine weeks.

Offsetting that, of course, was 5.5% average ticket decrease, and this is September still. Now, in September the minus 5.5% average transaction decrease included the combined negative impact of gas and FX of about 3.5 percentage points.

Other topics of interest I will review this morning, our opening activities and plans, we opened a total of 15 net new locations during the fiscal year, during the past fiscal year, which ended this past August 30. Plus one in Mexico. Of the 15, eight new in the US, two in Canada, and one each in the UK, Taiwan, Korea, and Japan. And, of course, just a few weeks ago we opened our first location in Australia in Melbourne.

We also relocated two units in 2009 to bigger, better located facilities. Now for fiscal 2010, we plan to open somewhere in the 15 to 18-range of new locations, about three-quarters of it in the US as well as up to two to three relocations. I’ll talk about expansion a little bit later.

Since fiscal year end, we have opened one new location in Phoenix, Arizona at the Paradise Valley shopping center with five additional openings planned before our November 22 Q1 end. One relo in Redwood City, California. Possibly a second, although I think it’s been delayed a week, so it will be in the first week Q2, and a new locations in each of Colorado, Missouri, and Ohio, and on November 12 we open our first unit in Manhattan at 116th Street and FDR Drive.

We now operate 560 locations around the world and that includes the 32 in Mexico which we do not consolidate as we are a 50% owner, not more than 50%. Also this morning, I will review with you our online results, membership, additional discussion about margins, and also our balance sheet for this fiscal year ended.

Okay, to the discussion of our quarterly results. Very briefly, sales for the fourth quarter were $21.9 billion, down 3.3% from last year’s $22.6 billion in the fourth quarter. And on a reported comp basis, again, the Q4 comp sales were down 5%, but excluding gas and FX, the minus 5% figure would be plus 1%.

For the quarter, our minus 5% reported comp sales were a combination of an average transaction decrease of minus 9.5%, and an average frequency increase of plus 4.5%. Included in the average decrease of 9.5% minus, a weak FX represented a little over 2% negative and the quarterly comps in gasoline deflation a little over four percentage points.

Cannibalization has not been a big impact in the last several quarters. It’s about a 40-basis-point hit to the comp number, but that’s been pretty consistent as compared to, not that much different as compared to past recent months and quarters. Now that we’re at fiscal year end, the average volume of our — all our locations Company-wide for fiscal 2009 averaged $131 million.

That’s about 4.4% lower than the $137 million average a year ago. Of course, a chunk of that is gas deflation and FX. The $131 million Company-wide compares to the US only of $133 million.

Now, in terms of geographic — sales comparisons geographically, couple comments. Within the US, all but one small region showed improvement from Q4 comps results to the September comp results. The largest positive delta, and when I say positive delta I’m saying what were the comps for this region and for all of the fourth quarter versus what were they in September. And, of course, September overall was better than the fourth quarter.

The largest positive delta was Southern California, followed by the Bay Area, then the Northwest, then the Northeast. In September, just looking at September geographically, all of California came in at a minus 1% or a plus 2% without gas deflation. In terms of merchandise categories, September comp sales all four core merchandise categories, food and sundries, hard lines, soft lines, and fresh foods, showed positive comps in September.

In fact, hard lines and soft lines positive September comps represented the first time since over a year ago that these departments had comp sales figures without a negative sign in front of them. Within Q4, in terms of merchandise categories, within food and sundries comps were slightly positive. No real standouts, a pretty narrow range among sub-departments.

Keep in mind that it is in many of these categories where we’ve been experiencing pretty decent levels of consumer products price deflation. Within hard lines we showed positive comps in majors, mid-single-digits. Everybody asks about how TV sales were.

They were, in terms of units, up 35%, again, mid-single-digits in terms of — by the way, that’s not quarter, that’s September. Hard lines also in September, [arhaba] in high-single-digits. Hardware, low-double-digits and sporting goods double-digits.

Within positive soft lines comps, again, not a whole lot of standouts for the quarter. However, for September, we saw decent numbers with housewares, small appliances and domestics, the latter two of those being right around 10%. Fresh foods was also up mid-single-digits which is an improvement from the past few months.

In the past few months, as well as September, the standout has been unit sales increases in the low-double-digits. Deflation is still there, but not as strong level of deflation as July and August.

While we can’t predict where these go in the future, by the end of this month we will have anniversaried both peak gas prices and the strengthening — what happened last year when the dollar strengthened against many of the currencies. So those two things hopefully will help but we’ll have to see. We really can’t predict that.

Moving down to the line items of the income statement, we’ll start with membership fees. Reported in the fourth quarter, membership fees were $490 million or 2.24% of sales. That’s up a little under 4% and a little over — about 15 basis points higher from the $473 million or 2.09% from a year ago. So about a $17 million reported increase. Of course, these numbers are impacted by FX.

Again, with the strengthening dollar, membership fees in international currencies, when converted to US dollars were lower than they would have been if the FX rates had stayed constant. So that $490.5 million reported, if we’d had constant FX in 2009 as compared to 2008, the $490.5 million would be $500.5 million or 2.29%, so a little under 6% increase, or 20 basis points up. Either way, good showing in our view.

Strong renewal rates still in the mid 87% plus range. Continuing increasing penetration of the executive membership. And the third factor impacting Q4 membership in the current results, three very strong Asia openings this past July. Now, that’s impacting sign-ups, recognizing we account for membership fee income on a going forward basis, if you will, and so even if we got them all in August, we had a very little bit of that income in August, it will be stretched out over the next 12 months.

Very large new member sign-ups in the three openings in July that we did in Taiwan, Korea, and Japan. We also had a great opening both in sales and membership sign-ups in the new country, in the City of Melbourne in Australia in August. Our new membership sign-ups in Q4 were down 3% year-over-year in the fiscal quarter.

Recall that they were down 7% in Q2 year-over-year and down 5% in Q3 year-over-year. Pretty much the same reason why. We don’t feel this is a big issue. We’re still feeling the impact of fewer year-over-year openings.

In Q4 2008, we opened a net of six openings but we actually opened 13 openings including [relos] compared to six which include two relos this year. So if you recall back even in Q2, in 2008 in Q2 we opened seven openings compared to zero. So, again, you’ve got a lot of new sign-ups and new buildings with fewer openings this year versus last. Overall fewer openings are impacting the new sign-ups, so, again, we believe that’s the biggest factor for that.

In terms of number of members at Q4 end, we ended Q4 2009 with 21.4 million members, up from 20.9 million at the end of Q3. Primary business remained at 5.7 million. Business add-on remained at 3.4 million. So all told, 30.6 million compared to 30.0 million at Q3 end. Including spouse cards, we went from 54.9 million at the end of Q3 to just 8,000 shy of 56 million at the end of Q4.

At fiscal year end, paid executive memberships totaled [8,936 million], an increase of 408,000 or 5% since Q3 3 end, that’s just under 26,000 a week increase. That’s new as well as conversions to the executive membership. I might point out that we did introduce the executive membership program in the UK this past fiscal quarter. That would make it the third quarter that we now have the executive membership.

Of the 408,000 executive members that became executive members during Q4, 62,000 came from the introduction of this program in the UK. So, again, taking that out, the 5% increase in that 16-week quarter would have been a 4% increase for the rest of the existing Company.

In terms of renewal rates, remained a shade under 87.5% coming in rounding to 87.3%, 92.2% on the business which is actually a slight improvement from Q3 end, and 86.0% which is one-tenth down from Q3 end, but averaging 87.3% overall. Going down the gross margin line, in the fourth quarter year-over-year the gross margin was up 56 basis points at a 10.85% compared to 10.29% last year.

This is where I ask you — one of the two times I ask you on the call to jot down a few numbers to help you understand our numbers. We’ll have three columns. Q2 2009, Q3 2009 and Q4 2009, and about six line items, core merchandise, second line is ancillary, third line is 2% reward, fourth line is LIFO, and last line is total.

Going across, core merchandising in Q2, year-over-year, core merchandising was down seven basis points. In Q3 up 42 basis points. In Q4 up 48 basis points. Ancillary businesses, and how it contributed or opposite to the quarter.

Q2 minus 19, Q3 plus eight basis points, and Q4 minus three basis points. The 2% reward all three quarters was minus nine basis points. LIFO, plus four, plus four, and in Q4 plus 22. That relates, of course, to the $16 million LIFO credit I talked about. In total, minus 31 in Q2, plus 45 in Q3, and plus 56 in Q4.

Recall, of course, in that Q2 we were very aggressive on pricing, and I talked about that back in Q2, leading up to the Christmas Day. As you can see our overall gross margin was higher by 56, and our core merchandise gross margin was up 48 basis points.

But as was in the case of both Q2 and Q3, the 48 basis points year-over-year core merchandise result is good but like in the past two quarters a large component of this increase reflects reduced gasoline sales penetration which is a much lower gross margin business. Our lower margin gas business represented 12% of Q4 2008 sales and only 8% of Q4 2009 sales as the average price per gallon dropped precipitously.

Thus, sales penetration of our core merchandise business was up year-over-year. So while gross margins of these areas were higher year-over-year by six basis points, its aggregate higher sales penetration caused it to be up significantly more in the matrix of the 48. But, again, if you look at like sales in those four categories to gross margin on those four categories divided by sales of those four categories it showed improvement of six basis points.

Of the four major departments, food and sundries and hard lines were up year-over-year in Q4 as they were in Q3. Soft lines was down ever so slightly and fresh foods was down somewhere in the mid 40, 50 basis points, similar as they were in Q3. That, again, we’re doing a lot more volume but with lower price points. We felt we did okay there.

The impact from increasing executive membership — executive member business continued in Q4 at a minus nine-basis-point impact. Again, the same nine-basis-point impact that occurred in both Q2 and Q3. The implication that means that about 4.5% of our sales penetration is increased executive membership, to executive member sales. We view this as a positive and it reflects increasing sales penetration to our most loyal members.

As mentioned in our press release, LIFO represent a large credit in Q4, $16.6 million pretax compared to the $32.3 million LIFO charge in Q4 last year. The deflationary trends, of course, began back in Q2 and continued throughout this past fiscal year.

Moving on to SG&A, our SG&A percentage Q4-over-Q4 were higher by 63 basis points, coming in at 10.29% of sales this year compared to 9.66% last year. Again, I’ll ask to you jot a few numbers down. We’ll use the same three columns, Q2 2009, Q3 2009, and Q4 2009.

The line items are operations, second line item is central, third line item is stock compensation, or equity compensation. Fourth line item, quarterly adjustments, and then total. And I will actually have a memo line item below the total called gas mix effect.

Going across, operations in Q2 2009 year-over-year compared to Q2 2008, it was minus 34 or higher by 34 basis points. Q3, minus 67 basis points, and Q4, minus 61. Central, minus four, minus 15, and minus eight. Equity, minus one, minus five, and minus one.

Quarterly adjustments, zero, minus nine, and plus seven. And total, minus 39, minus 96, and minus 63. Now, the memo item, the gas mix effect, and basically this is the number that when you look at the operations line, the 34, 67 and 61, of that these three numbers relate to the lower gas penetration which, while it boosted reported margins, it also boosts the percentages of reported SG&A.

Of that minus 34, minus 28 was gas mix effect. of the minus 67, 38, and of the minus 61, minus 40. So, again, a big chunks of those numbers relate to that. And, again, hopefully gasoline deflation, or these giant swings is getting ready to anniversary.

In terms of a little editorial on these SG&A issues, I will point out the following. Again, operations was higher by 61. But again, as I mentioned, the gross margin percentage is where it helped us. It correspondingly hurt is here in SG&A.

Our central expense was higher year-over-year in Q4 by minus eight basis points. About three basis points of gas mix and most of the other five basis points was higher payroll and benefits as a percent. Health benefits is a big chunk of that, within that number, but certainly payroll was up small single-digits on essentially flat sales.

Our stock compensation expense was almost flat in dollars year-over-year in Q4. Down about 3% on slightly lower sales but up one basis point in terms of percentages. Benefits, I mentioned Q4 year-over-year percentage was higher by [16] basis points. This includes a sizable year-over-year spike in healthcare utilization. For the quarter, the amount we spent on US healthcare was up over 25%.

Three factors fueled this large rate of increase. Normal healthcare inflation that we all hear and read about, increased utilization per person, some would argue that’s related to everything going on in the economy and stress and what have you, but we don’t know. And greatly reduced — and the last one is greatly reduced employee turnover.

With regard to the reduced employee turnover, there is — there’s a smaller percentage of our employee base who are not yet eligible for benefits. Over 90% of our new hires tend to be entry level part-time hourly employees. Our part-time hourly employees become benefits eligible on average around six and a half months after they begin. It’s the first of the month after they start plus six months.

As we have opened fewer units, as well as existing employees aren’t turning over as fast in this tiffany bracelet, you’ve got more people that are benefits eligible. For the last several years, the percentage of our employees that are benefits eligible was right around 80%, 82%. In the last year, it has gone to 92%, the low 90s.

So again, that’s not going to go away, and that’s economy related. My guess is as the economy improves slowly you will see a reduction in that, but it will be probably minor levels of reductions over a few years, assuming that people’s expectations out there, that it’s going to take that long for the economy to improve. But nonetheless, that’s also exacerbating it a little bit.

In terms of quarterly adjustments, the plus seven simply relates to the fact that in Q4 last year we that had $15.9 million pretax charge for a litigation settlement versus nothing this quarter. Overall, not a bad SG&A performance given sales levels, the huge gasoline deflation and increased benefits costs.

I don’t see benefits costs changing dramatically. I think it’s going to continue to be relatively high, but we’ve worked that into our numbers this coming year. In terms of factors that will impact our outlook, 2010, probably the single biggest question is sales trends, and where that goes, and, of course, the anniversarying of gas deflation that will help a little bit.

Next on the income statement is pre-opening expense, $5.8 million higher this year, coming in in the fourth quarter at $17.8 million. I’m sorry, lower this year, coming in at $12 million this year in the fourth quarter versus $17.8 million last year. No real surprise. Last year in the fourth quarter including relos we opened a total of 13 units. This year in the fourth quarter, including the two relos, we opened six new openings.

In terms of provision for impaired assets and closing costs, in Q4 2008 last year we had a net credit of $6.2 million for the quarter. That was comprised of about a $12 million in real estate gains offset by about $6 million in actual closing costs. In the fourth quarter this year, we didn’t have any real estate gains but we did after net charge of $2.7 million in closing costs.

So there you have almost a $9 million pretax year-over-year negative swing in Q4. All told, operating income in Q4 2009 was down about 1% year-over-year, from $604 million last year to $597.8 million this year, or a decrease of about $6 million.

Below the operating income line, reported interest expense was slightly higher year-over-year with the fourth quarter coming in at $33.3 million versus $32.1 million last year, so a little over $1 million. These amounts mainly reflect the interest expense on our $2 billion debt offering that we did in February 2007. Interest income, however, interest income and other was lower year-over-year by $20 million in the quarter, reported at $15 million this year versus $35 million last year.

As I mentioned earlier, of that $20 million swing, about $15 million of it was lower interest income. The other $5 million is basically the weak peso. We account for Mexico on an equity method which means we simply add — since we own half of it we add half of their earnings into this interest income and other line. The peso in 2008 was around 10 to the dollar. The peso in 2009 was closer to 13. So, again, about $5 million of that number there is the weakness when expressed in US dollars.

Everything Channel, a division of United Business Media, announced that Laurie Balcerak has joined its Field Sales and Marketing Services group as Global Sales Director. Everything Channel’s Field Sales & Marketing Services provide multi-channel marketing and sales services for technology vendors which are designed to tiffany jewelry on sale and complement the sales process and drive marketing programs that sell. Balcerak is based in Chandler, AZ and will report to Dan Dignam, SVP, Everything Channel.

“Laurie’s vast knowledge of the IT channel and distribution, combined with her outstanding salesmanship and operational excellence will propel our Field Sales & Marketing Services business to new heights. We welcome Laurie to our team,” said Dignam.

With more than 15 years of channel sales and marketing expertise, Balcerak comes to Everything Channel from ViewSonic Corporation where she held a number of roles since 1996. She spent the last ten years managing sales through distribution. Prior to Viewsonic, Balcerak worked in sales for MicroAge Incorporated.

Balcerak earned a Bachelor of Arts degree from Dickinson College.

For additional information on Everything Channel’s Field Sales & Marketing Services, visit www.everythingchannel.com. Balcerak can be reached at 480.963.2999 or laurie.balcerak@ec.ubm.com.

About Everything Channel (http://www.everythingchannel.com/, http://www.channelweb.com/)

Everything Channel is the one-stop shop for managing and accelerating technology sales. From discount tiffany and recruiting to marketing and sales, Everything Channel offers technology marketers the unmatched breadth and depth of global brands and market intelligence combined with unparalleled audience loyalty and credibility serving all technology sales channels through an extensive database. Everything Channel provides innovative field sales and marketing solutions to arm the sellers of technology with the resources they need to achieve measurable and significant results.

About United Business Media Limited (www.unitedbusinessmedia.com)

UBM (UBM.L) focuses on two principal activities: worldwide information distribution, targeting and monitoring; and, the development and monetization of B2B communities and markets. UBM’s businesses inform markets and serve professional commercial communities – from doctors to game developers, from journalists to jewelry traders, from farmers to pharmacists – with integrated events, online, print and business information products. Our 6,500 staff in more than 30 countries are organized into specialist teams that serve these communities, bringing tiffany jewelry sale and sellers together, helping them to do business and their markets to work effectively and efficiently.