FRANCOIS MORI
Harry Winston Diamond Corp.'s prediction of a bright future this year amid soaring sales and profits helped send its share price to a six-month high Wednesday, when a major investor cashed in and sold its remaining stake in the diamond miner.
The Toronto-based company said it expects diamond purchases to climb as the global economy rebounds, especially in Asia, where holiday sales increased 169 per cent, excluding sales in Japan.
"Going forward, we expect increased demand for luxury jewellery and timepieces to continue, supported by the strong wealth trend we've seen in various markets around the world," Frederic de Narp, head of Harry Winston's retail segment said in a conference call.
"While there will be variations in our quarterly results depending upon product needs and investment, we continue to expect a positive overall trend and remain on track with our goals."
The bright outlook and strong fourth-quarter results helped push Harry Winston's share price up 5 per cent to close at $14.67 Wednesday on the Toronto Stock Exchange.
Shortly after the markets closed, Kinross Gold Corp. announced it had sold its remaining 8.5 per cent interest in the diamond miner, representing some 7.1 million shares, for $100-million.
It was the highest closing price Harry Winston has seen since Kinross acquired the additional shares in August as part of an exchange for Kinross selling its 22.5 per cent interest in the partnership that owns 40 per cent of the Diavik Diamond Mine. Kinross also received millions in cash and debt.
Harry Winston sold the indirect stake in the mine during the depths of the recession when it desperately needed cash and the price of gold was soaring, giving gold companies money to spare.
Looking ahead, Harry Winston said it plans to focus on its watch business - which provides higher profit margins compared to other products - and introducing both more affordable and more expensive timepieces.
The company plans to open one retail location in Las Vegas and two new stores in Shanghai this year. It credits increased demand in China and other parts of Asia for the 89 per cent higher sales in its luxury brand segment, which grew to $132.7-million in the fourth quarter.
Japan made up 18 per cent of its luxury brand sales last year, but Harry Winston said it is too early to determine how much of an impact the catastrophic earthquake and tsunami in the country could have on sales. Stores in the country were undamaged during the disasters, and remained operational.
Scotia Capital analyst David Christie said he predicts the retail side of Harry Winston's business to show a 15 per cent improvement for the year.
He said unrest in the Middle East and the crisis in Japan will lead to lost sales, but skyrocketing demand from Chinese customers will cushion the impact of fewer Japanese sales.
"The luxury goods demand, you'd think they'd be going down right now but they're not, they've been doing extremely well especially in Asia and in the States, which is surprising as well," he said, adding that a focus on the watch business could lead to bigger money for Harry Winston.
"That's a really high margin business for them. They have a brand new factory in Switzerland. It doesn't cost them much to produce the things so they make a lot of money on them," he said, explaining that some of those watches could cost hundreds of thousands of dollars.
On the mining side, the company, which partially owns the Diavik mine in the Northwest Territories, said it plans to open more pits in the coming years and begin new exploration drilling that will provide a better mix of higher grade diamonds, helping bring up prices by up to 30 per cent.
"Rough diamond pricing is now comfortably ahead of its pre-recession highs and polished diamond prices are making significant gains as competition for supply replaces the polisher's need to sell," said Robert Gannicott, the company's chairman and CEO.
Mr. Christie said he expects rough diamond prices to keep climbing, while mining costs should fall as mining methods improve, with higher quality gems once the mining process is finalized. Harry Winston had announced last year that it would produce fewer carats and lower-grade stones in the near term due to mud problems at the Diavik mine.
On Tuesday, Harry Winston said a 61 per cent surge in sales during the holiday season helped rebound its fourth quarter profit.
It earned $9.9-million (U.S.), or 12 cents per share, soaring past analyst estimates of 7 cents per share. That's compared to a loss of $3.4-million, or 4 cents per share, a year ago.
Harry Winston had predicted store renovations, a new global advertising campaign, and a interest in the 50th anniversary of its donation of the Hope Diamond to the Smithsonian Institution in Washington, D.C., would fuel sales during the holiday season.
The company has a 40 per cent stake in the Diavik mine, while Rio Tinto owns 60 per cent.