Diamond miner Harry Winston first quarter profit sparkles

Diamond miner and retailer Harry Winston (TSX: HW) (NYSE:HWD) says its earnings for the first quarter of fiscal 2013 tripled to $11.6 million, as sales in both its rough diamond and luxury goods segments had more lustre than a year earlier.

The Toronto-based company, which reports in US dollars, said in a statement its consolidated net profit attributable to shareholders amounted to 14 cents per share, up from $3.6 million, or 4 cents per share, in the same quarter of fiscal 2012.

"We have improved sales, operating margins and profitability in all sectors of our business compared to the equivalent quarter of the prior year," said Robert Gannicott, chairman and chief executive officer.

First Quarter Highlights (from the Press Release)

  • Consolidated sales increased 34% to $192.5 million for the first quarter compared to $143.9 million for the comparable quarter of the prior year.  Operating profit was $18.7 million compared to $4.7 million in the comparable quarter of the prior year.  EBITDA increased 77% to$44.2 million compared to $25.0 million in the comparable quarter of the prior year.
  • For the mining segment rough diamond sales for the quarter rose 43% to $89.0 million, versus $62.0 million in the comparable quarter of the prior year.  The increase was due to a 116% increase in the quantity of carats sold. This was primarily the result of the sale of almost all of the remaining lower priced goods originally held back in inventory by the Company at October 31, 2011 as well as higher production in the first calendar quarter compared to the comparable quarter of the prior year.
  • The Company sold approximately 1.0 million carats for an average price of $88 per carat compared to approximately 0.5 million carats for an average price per carat of $132 in the comparable quarter of the prior year. The 34% decrease in the Company's achieved average rough diamond prices in the first quarter resulted from a combination of three factors:
    • The sale of the lower priced goods originally held back in inventory by the Company at October 31, 2011.
    • The Company's decision to hold back some higher priced goods in the first quarter of fiscal 2013 due to an observed imbalance in the rough and polished diamond prices for these goods.
    • The Company's January 2012 sale straddled the fiscal 2012 year-end with the lower priced portion of the sale, which occurs in India, pushed into the first quarter.
  • Had the Company sold only the last production shipped for the first quarter, the estimated achieved price would have been approximately$125 per carat based on the prices achieved in the March/April 2012 sale.
  • Rough diamond production for the calendar quarter ended March 31, 2012 was 1.6 million carats compared to 1.4 million carats in the calendar quarter of the prior year (on a 100% basis).
  • Luxury brand segment sales increased 26% (26% at constant exchange rates) to $103.5 million compared to $81.9 million in the comparable quarter of the prior year.  Operating profit increased 68% to $7.1 million in the first quarter compared to $4.2 million in the comparable quarter of the prior year.   The increase was primarily driven by positive mix with increased sales of higher-margin access and core products.
  • Consolidated net profit attributable to shareholders for the first quarter was $11.6 million or $0.14 per share compared to net profit attributable to shareholders of $3.6 million or $0.04 per share in the comparable quarter of the prior year.

Fiscal 2013 First Quarter Financial Summary 

(US$ in millions except Earnings per Share amounts)

  Three months
ended
Apr. 30, 2012
  Three months
ended
Apr. 30, 2011
Sales
     Mining Segment
     Luxury Brand Segment   
$192.5
89.0
103.5
$143.9
62.0
81.9
Operating profit (loss)
     Mining Segment
     Luxury Brand Segment
     Corporate Segment
18.7
16.4
7.1
(4.8)
4.7
4.0
4.2
(3.5)
Net profit 11.6 3.6
Earnings per share $0.14 $0.04

Complete financial statements, MD&A and a discussion of risk factors are included in the accompanying release.

Outlook
A mine plan and budget for calendar 2012 has been approved by Rio Tinto plc, the operator of the Diavik Diamond Mine, and the Company.  The plan for calendar 2012 Diavik Diamond Mine production remains at approximately 8.3 million carats (100% basis).  Looking beyond calendar 2012, the objective is to fully utilize processing capacity with a combination of production from the underground portions of A-154 South, A-154 North and A-418 supplemented by the A-21 open pit. The A-21 pre-feasibility study currently being undertaken assumes that the A-21 pipe will be mined with the open pit methods used for the other pipes. A dyke would be constructed similar to the two other pits but smaller in size. Detailed plans are still being refined and optimized although no underground mining is being planned. The capital expenditures are estimated to be in the region of $500 million (100% basis) at an assumed average Canadian/US dollar exchange rate of $1.00. The Company still expects that the A-21 pipe, if mined together with the other pipes, would have a positive net present value.

The Company expects that global demand for luxury jewelry and watch products will continue to increase.  However, the sovereign debt crisis inEurope and the slowdown in the growth of China's economy are challenges that may impact the demand for luxury jewelry and watch products in the near term. The Company remains confident that the introduction of its new watch and jewelry products, supported by a strong advertising campaign, will contribute to sales growth. Continued expansion of the distribution network in prime locations around the world should allow the Company to benefit from the increasing mobility of high-end luxury consumers. A second, directly operated salon in London, United Kingdom, is expected to be opened by the middle of the fiscal year. A new licensed salon was opened in Moscow, Russia in May 2012, and an additional licensed salon is expected to be opened during fiscal 2013, in Kuwait City, Kuwait.  The Company plans to expand by 30 wholesale watch doors to more than 220 doors by the end of fiscal 2013.

Shares of Harry Winston dropped 34 cents, or 2.7%, to $12.16 in midday trading. The stock has traded in a 52-week range of $9.14 to $17.80.