Harry Winston Diamond’s (HW-T, HWD-N) first-quarter earnings of fiscal 2013 tripled to US$11.6 million on higher rough diamond sales and stronger retail performance, but missed analysts’ expectations.
For the quarter ended April 30, consolidated sales were US$192.5 million, up 34% from US$143.9 million, and operating profit was US$18.7 million, up US$4.7 million from a year ago.
The diamond miner and luxury-goods producer reported consolidated net profit attributable to shareholders of US14¢ per share, compared to US4¢ a share in the same period of fiscal 2012, falling below the consensus of US19¢ per share.
Bank of Montreal analyst Edward Sterck, estimating first-quarter earnings of US23¢ per share, attributes the miss to lower realized prices despite sales being 26% higher than expected.
The miner sold 1 million carats at an average realized price of US$88 per carat for US$89 million, up from 500,000 carats at US$132 a carat for US$62 million a year ago.
The 116% rise in carats sold resulted from the company selling most of its remaining lower-priced goods held back in inventory last October, and from higher production in the first calendar quarter compared to the same period last year.
The diamond producer said three factors dragged down the company’s average realized price: the sale of the cheaper inventory from October, a tender in India that contained largely lower-valued diamonds and a decision to delay selling higher-priced diamonds in the reported quarter due to an imbalance between rough and polished diamond prices.
In a note to clients, Sterck says the US$88-per-carat price was 37% lower than he had expected, while US$89-million revenue was down 20% and US$39 million in earnings before deduction of interest, tax and amortization expenses was down 24%.
“The miss in the mining segment was partially offset by stronger performance from the retail division, which reported revenue of US$104 million [up 16% versus forecast] and operating profit of US$7 million [up 92%], on an operating profit margin of 7% [versus 4% forecast],” he adds in the note.
The company’s luxury-brand segment reported stronger year-on-year sales in Europe and Asia, while sales in North America dipped slightly.
The Toronto-based miner predicts global demand for luxury jewellery and watch products will rise, but warns the sovereign debt crisis in Europe and the slowed economic growth in China may hurt demand in the near-term.
For the calendar year, Harry Winston expects production of 8.3 million carats from its 40%-held Diavik diamond mine 300 km northeast of Yellowknife, N.W.T. Rio Tinto (RIO-N) owns 60% and is the operator, recently approving the 2012 mine plan and budget. Capital expenditures are estimated at $500 million.
“The Diavik mine continues its transition to underground mining while jewellery and timepiece sales demonstrate our success in broadening the reach of the brand beyond reliance on a small, ultra high-end market,” says Robert Gannicott, the company’s chairman and CEO.
On June 7, the day it released its quarterly results, Harry Winston shares in Toronto were off 4% to $12.33, within a 52-week range of $9.71 and $16.89.
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