Tiffany & Co. (TIF) and Zale Corp. (ZLC) Tuesday said quarterly profits rose, as the jewelers lured shoppers with more lower-priced rings, earrings and bracelets that carry higher margins.

New York-based Tiffany, well-known from the 1961 movie starring Audrey Hepburn, "Breakfast at Tiffany's," posted a 6 percent rise in first-quarter earnings, boosted by improved profit margins despite a slender rise in total sales.

Dallas-based Zale, which caters to a lower-income customer than Tiffany, reported fiscal third-quarter earnings surged 60 percent as the nation's No. 1 jewelry chain rang up higher sales of moderate priced jewelry and recaptured market share.

"The (jewelry) industry is pretty healthy now, and the worst is behind us from a consumer spending standpoint," said Jeffrey Stein, an analyst at McDonald Investments.

Tiffany -- known for ultra-high end items like million-dollar engagement rings and sterling silver baby rattles -- said while the amount of customer transactions climbed, the average transaction fell, a sign that shoppers shifted toward buying cheaper items like silver.

Tiffany spokesman Mark Aaron said customers, tighter-fisted in the slow U.S. economy, have made subtle adjustments in purchases.

"It could be someone who is planning to buy a three-karat diamond ring buys a two-karat one instead," he said. The retailer's average sale was $317 in 2001, but it doesn't break out the figures on a quarterly basis.

Zale also said shoppers were trading down.

"The moderate side is the better part of the business, but the better side is showing signs of recovery," Zale Chief Financial Officer Sue Gove told analysts in a conference call.

Zale, which in March announced the re-retirement of Chairman and Chief Executive Robert DiNicola, said it was "cautious" about its outlook for next year. But it stood by analysts' consensus forecast for fourth-quarter earnings of 23 cents, with sales at stores open at least a year, or same-store sales, up in a mid single-digit percentage range.

Zale has refocused on its core bridal business under DiNicola, whom the company coaxed out of retirement last February after a series of missteps put the business in jeopardy. The CEO's decision to step down yet again came sooner than expected, worrying some investors and prompting several analysts to cut their rating on the stock.

The company's shares have since clawed back, however, jumping another 7 percent, or $2.90 to $43.55 in afternoon New York Stock Exchange trade.

Zale said earnings climbed in the quarter ended April 30 were $7.7 million, or 22 cents a share, compared with $4.8 million, or 14 cents in the year-earlier period. Net sales rose 6 percent to $444.4 million, from $418 million last year.

Analysts polled by research firm Thomson Financial/First Call had called for an average of 20 cents.


Tiffany, which has a history stretching back 165 years, forecast second-quarter profits between 22 cents and 24 cents, which is tending toward the lower end of Wall Street's current expectations.

Its stock slipped 0.4 percent, or 17 cents, to $39.62 on the NYSE, still near the 52-week high of $40.83.

The luxury retailer said even though it is introducing new jewelry designs to keep customers buying, it sees the U.S. economic environment challenging in the near-term, with conditions improving in the second half of the year.

Tiffany posted net income in the quarter ended April 30 of $32.7 million, or 22 cents a share, matching Wall Street's raised expectations. That compared with $30.7 million, or 20 cents in the year-earlier period.

On April 25, Tiffany boosted its forecast to 22 cents a share, from a range of 16 cents to 17 cents previously.

David Schick, an analyst for SunTrust Robinson Humphrey, said the latest results underscored good business execution by Tiffany in a tough environment.

"Tiffany does not press panic buttons," he said. "They make a very slight series of long-term business improvement decisions, like internal manufacturing and adding up more robust (product) offerings."

Sales in the latest quarter edged up 3 percent to $347.1 million from $336.4 million in the prior year. Same-store sales rose 2 percent, while the company's flagship store on Fifth Avenue in Manhattan, which accounts for 11 percent of total sales, showed a dip of less than 1 percent.

Tiffany's business had been weak since the middle of last year, mainly due to the U.S. economic slump and from the after-effects of the Sept. 11 attacks which kept tourists away.