Tiffany's Worldwide Sales up 11% in Second Quarter; E.P.S. from Continuing Operations Increase 31%; Company Raises Its Full Year Earnings Expectation

Tiffany & Co. (NYSE: TIF) today reported results for the three months ("second quarter”) and six months ("first half”) ended July 31, 2008. Strong net sales growth in Asia-Pacific and Europe led to an 11% increase in worldwide net sales in the second quarter. Combined with a higher operating margin, this resulted in a 21% increase in net earnings from continuing operations and a 31% increase in earnings per diluted share in the quarter. These results enabled the Company to slightly increase its earnings expectation for the full year.

Net sales in the second quarter increased 11% to $732.4 million. On a constant-exchange-rate basis which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars (see attached "Non-GAAP Measures” schedule), worldwide net sales rose 7% and comparable store sales declined 1%.

In the first half, net sales rose 11% to $1.40 billion. On a constant-exchange-rate basis, sales increased 7% and comparable store sales rose 1%.

Net earnings from continuing operations in the second quarter rose 21% to $80.8 million, and increased 31% on a diluted per share basis to $0.63 from $0.48 in the prior year. Net earnings per diluted share were $0.29 in the prior year due to a loss from discontinued operations. Net earnings on a diluted per share basis benefited from fewer shares outstanding due to the Company’s share buy-back program.

In the first half, net earnings from continuing operations increased 20% to $145.2 million, and rose 31% on a diluted per share basis to $1.13 per diluted share, versus $0.86 a year ago. Net earnings per diluted share were $0.67 a year ago.

In the second quarter and first half of 2007, the Company had recorded an after-tax charge of $23.6 million related to the sale of its Little Switzerland business, as well as losses from those operations.

Net sales by geographical region were as follows:

• Sales in the Americas region increased 3% to $422.4 million in the second quarter and 4% to $796.0 million in the first half largely due to incremental sales from new stores. In the U.S., comparable store sales declined 4% in the second quarter and 2% in the first half; in the respective periods, sales in the New York flagship store rose 5% and 10% reflecting increased spending by non-U.S. visitors, while comparable branch store sales declined 6% and 5%. Combined Internet and catalog sales in the U.S. declined 4% in the second quarter and 2% in the first half. The Company achieved strong sales growth in Canada and Latin America.
• Sales in the Asia-Pacific region increased 17% to $214.2 million in the second quarter and 19% to $436.3 million in the first half. On a constant-exchange-rate basis, sales increased 7% and 8% and comparable stores sales rose 1% and 2% in the respective periods. Strong growth in most countries was partly offset by results in Japan.
• Sales in Europe in the second quarter increased 35% to $71.0 million and 36% to $131.1 million in the first half. On a constant-exchange-rate basis, sales rose 29% and 30% in the respective periods due to comparable store sales growth of 11% and 12% and sales from new stores.
• The Company operated 196 TIFFANY & CO. stores and boutiques at July 31, 2008 (82 in the Americas, 95 in the Asia-Pacific region and 19 in Europe) compared with 172 stores (74 in the Americas, 83 in Asia-Pacific and 15 in Europe) a year ago.
• Other sales increased 37% to $24.7 million in the second quarter and 10% to $37.2 million in the first half, largely due to increased wholesale sales of diamonds in connection with the Company’s diamond sourcing program.

Michael J. Kowalski, chairman and chief executive officer, said, "Tiffany’s global retail operations once again demonstrated the ability to generate strong operating earnings growth despite weakness in certain individual country markets. Our continued expansion throughout Asia and Europe should contribute to increasingly consistent and resilient long-term earnings growth.”

Other financial highlights were as follows:

• Gross margin (gross profit as a percentage of net sales) increased in the second quarter and first half to 57.8% and 57.4%, respectively, from 56.1% in both prior-year periods. The increases largely reflected favorable changes in geographic and product sales mix, as well as sales leverage on fixed costs.
• Selling, general and administrative (SG&A) expenses rose 13% in both the second quarter and first half due to incremental costs related to new stores and increased marketing expenses, as well as some translation effect from foreign currencies. SG&A expenses as a percentage of net sales were 39.8% in the second quarter and 40.7% in the first half, compared with 39.1% and 40.1% in the respective prior-year periods.
• The effective tax rate was 37.0% in the second quarter and 36.9% in the first half, versus 39.4% and 38.1% in the prior year.
• Net inventories at July 31, 2008 increased 10% from a year ago to $1.51 billion, largely due to increased raw material and work-in-process inventories for manufacturing operations, inventories for new store openings and currency translation.
• The Company repurchased and retired 1,723,201 shares of its Common Stock in the second quarter at a total cost of $73.7 million, or an average cost of $42.75 per share. In the first half, the Company repurchased and retired 3,105,801 shares of its Common Stock at a total cost of $128.5 million, or an average cost of $41.37 per share. Under the current program, as of July 31^st there remained $492 million available for future repurchases through January 2011.
• Total debt as percentage of stockholders’ equity was 36% at July 31, compared with 27% a year ago.

Mr. Kowalski added, "Tiffany’s increased sales and earnings so far this year are notable in view of the substantial growth achieved in the first half of last year, which had included an 18% sales increase and a 29% increase in net earnings from continuing operations. While we acknowledge that challenging economic and consumer conditions exist in the U.S., as they have for several quarters, our first half results and the most recent worldwide trends keep us on track to meet our full year sales and earnings growth expectations.”

2008 Outlook:

The Company expects net earnings in the full year to increase to $2.82 - $2.92 per diluted share, versus its previous forecast of $2.80 - $2.90. This expectation includes worldwide sales growth of approximately 9%, based on continued strong growth in Europe and Asia-Pacific (other than Japan) and a return to growth in comparable U.S. store sales in the fourth quarter due to an easier year-over-year comparison. The Company now also expects the full-year operating margin to increase slightly over the prior year.

Today’s Conference Call

The Company will host a conference call today at 8:30 a.m. (Eastern Time) to review these results and its outlook. Investors may listen at http://investor.tiffany.com ("Events and Presentations”).

Next Scheduled Announcement

The Company expects to report its third quarter results on Wednesday, November 26, 2008 with a conference call at 8:30 a.m. (Eastern Time) that day. To receive notifications of conference calls and news release alerts, please register at http://investor.tiffany.com ("E-Mail Alerts”).

Company Description

Tiffany & Co. operates jewelry and specialty retail stores and manufactures products through its subsidiary corporations. Its principal subsidiary is Tiffany and Company. The Company operates TIFFANY & CO. retail stores and boutiques in the Americas, Asia-Pacific and Europe and engages in direct selling through Internet, catalog and business gift operations. Other operations include consolidated results from ventures operated under trademarks or tradenames other than TIFFANY & CO. For additional information, please visit www.tiffany.com or call our shareholder information line at 800-TIF-0110.

This document contains certain "forward-looking” statements concerning the Company’s objectives and expectations with respect to sales, operating margin and earnings per share. Actual results might differ materially from those projected in the forward-looking statements. Information concerning risk factors that could cause actual results to differ materially is set forth in the Company’s 2007 Annual Report on Form 10-K and in other reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

TIFFANY & CO. AND SUBSIDIARIES

(Unaudited)

NON-GAAP MEASURES

The Company’s reported sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar.

The Company reports information in accordance with U.S. Generally Accepted Accounting Principles ("GAAP”). Internally, management monitors its international sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars ("constant-exchange-rate basis”). Management believes this constant-exchange-rate measure provides a more representative assessment of the sales performance and provides better comparability between reporting periods.

The Company’s management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. The following table reconciles sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year: