September 6, 2012 5:03 pm

Harry Winston diamond sales in the rough

Harry Winston said it would hold back its most expensive diamonds from the market until later this year, in the face of slowing consumer demand and increasingly volatile prices.

The news came as the Canadian miner and retailer announced that its second-quarter profits had halved, compared with the same period a year ago, as an increasingly poor rough diamond market and lagging sales continued to weigh on the luxury jewellery sector.

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The company, which has a market value of about C$1.1bn ($1.1bn), reported consolidated net profit of $4.8m, or 6 cents a share, in the three months ended July 31 – a fall of 52 per cent from $10m, or 12 cents a share, a year earlier.

Sales dropped 20 per cent year-on-year to $176.9m.

Mining sales were down 31 per cent to $61.5m, because of a 24 per cent decrease in volume of carats sold, coupled with a 10 per cent drop in rough diamond prices.

Robert Gannicott, chairman and chief executive, confirmed that the producer would hold back its high-value rough diamond inventory until more stability returned to the precious stones market. The company currently has around 700,000 carats on its books with a market value of $90m.

“We will ease more stones into production in the last quarter – we believe there will be higher prices to be had as we enter the gift-giving season,” he said on a conference call on Thursday.

“It is important that we remain cautious and don’t overexpose ourselves to the fits and starts of the market, particularly when we feel there to be a mismatched correlation between rough and polished diamond prices.”

The management team stressed that, while the group remained cautious on its short-term outlook, its overarching strategy – of investing in infrastructure supply chains, product assortment and retail and wholesale expansion – continued to be successful, as the overall luxury sector remained buoyant.

Bridal and timepiece collections continued to reap double-digit sales growth across global regions, with particularly strong results from China and other emerging markets.

“The results really show a tale of two halves,” said Oliver Chen, a luxury analyst at Citigroup. “Whilst the numbers slid badly, stocks were also up 4 per cent on Thursday, indicating perception of continued value in the mining and luxury sectors. It remains to be seen whether the decision to hold on stones will prove fruitful for Harry Winston, given continued softening Chinese consumer demand and the groups’ ongoing supply and financing constraints.”

Last month, the Financial Times reported that Harry Winston was in talks with BHP Billiton about a sale of BHP’s diamond business, as the jeweller seeks to consolidate further mining assets in order to secure supply operations.

Harry Winston shares rose 4.8 per cent to $12.83 on Thursday morning in New York.

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