Harry Winston Q1 misses consensus

Harry Winston Diamond’s (HW-T, HWD-N) earnings for the first quarter of fiscal 2013 tripled to US$11.6 million on higher rough diamond sales and stronger retail performance, but missed analysts’ expectations.  

The diamond miner and luxury goods producer reported consolidated net profit attributable to shareholders of US14¢ per share, compared to US$3.6 million, or US4¢ a share, in the same period of fiscal 2012, falling below consensus of US19¢ per share.

BMO’s analyst Edward Sterck, estimating first quarter earnings of US23¢ per share, attributed the miss to lower realized prices, despite sales being 26% higher than he’d expected.

The miner sold about one 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%-increase in the quantity of carats sold resulted mainly 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 a year earlier.  

The diamond producer said three factors dragged down the company’s average realized price. These included the sale of the cheaper inventory from October, a January 2012 tender in India that contained largely lower value 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 said the US$88-per-carat price was 37% lower than he had expected, while revenue of US$89 million was down 20% and EBITDA of US$39 million 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% vs. forecast) and operating profit of US$7 million (up 92%), on an operating profit margin of 7% (vs. 4% forecast),” he added 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 jewelry and watch products to 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 operation located 300 km northeast of Yellowknife, N.W.T. Rio Tinto (RIO-N, RIO-L) owns the remainder.

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.

On June 7, the day it released its quarterly results, Harry Winston shares in Toronto were off 4% to $12.33.