In prior recessionary periods, most luxury jewelers were more or less immune from the slowdown in consumer spending. However, during the current economic volatility, it seems as if no jeweler is untouched by a retraction in consumer spending.

 

Birks & Mayors reported a slight increase in total sales, but it was driven by newly added stores. Its same-store sales were down, and customer traffic declined. Demand for fine jewelry was weak; its sales were driven primarily by demand for watches, which has historically been its key product category, especially for its U.S. Mayors stores.

The following table summarizes key financial data for Birks & Mayors for its second fiscal quarter ended September 2008.

 

 

Highlights from Birks & Mayors’ September quarter include the following:

 

• Sales of merchandise over $20,000 retail were the strongest category. As a result, the company’s average ticket rose, though management did not disclose the actual average sale value. However, customer traffic in Birks & Mayors’ stores was down.

• Demand for statement jewelry was strong in both the U.S. and Canadian markets.

• Demand for watches remained relatively strong at Birks & Mayors, but management said fine jewelry as a category is suffering from weak demand.

• Reported inventory per store fell by 5 percent on a same-store basis. However, when currency translation and new stores are eliminated, inventory per store rose by just over 5 percent. Either way, we are impressed with management’s ability to control inventory in a volatile sales environment.

• The company reported that its same-store sales in the three-month period ended September were down 6 percent. Management indicated that sales deteriorated toward the end of the quarter. Same-store sales declined by 5 percent in Canada and were down by 6 percent in its U.S. stores.

• Birks & Mayors’ October same-store sales fell by 15 percent. The company did not break out same-store sales by market – U.S. versus Canada – but we believe that U.S. same-store sales fell by around 20 percent in October.

• Management said that November month-to-date sales (first half of the month) were tracking worse than October sales trends. The table below summarizes the company’s recent sales trends.

• It is possible that Birks & Mayors will close a few stores – perhaps up to four units over the next year or two, depending on the terms of the lease. Management indicated that the stores under consideration for closing were “not losing a great deal of money.”

Source: Company reports

 

• The company’s gross margin fell to 44.8 percent of sales from last year’s 48.3 percent due to the lowering of retail prices in Canada. This was related to currency disparities which existed late in 2007 and early 2008. However, with the weakening Canadian Loonie and strengthening U.S. Greenback, Birks & Mayors will be forced to revisit its retail pricing strategy between these two markets.
  
  It is possible that some of the company’s margin deterioration was related to an increased sales mix of watches which traditionally carry an inherently lower market. However, management did not comment on this.

• In an effort to offset sales softness, the company successfully cut operating costs. For the September quarter, its selling, general and administrative costs were 44.6 percent of sales, down from last year’s 47.7 percent. Three key cost categories were reduced: marketing, incentive compensation and general operating costs. However, cost levels were affected negatively by two new stores and the Brinkhaus acquisition.

• The company did not provide an outlook for either the near term or the longer term.