The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes. All references to years relate to the fiscal year that ends on January 31 of the following calendar year.

The Company's key strategies are:

• To selectively expand its global distribution without compromising the value of the TIFFANY & CO. trademark.

Management intends to expand distribution by adding stores in both new and existing markets. Management recognizes that over-saturation of any market could diminish the distinctive appeal of the TIFFANY & CO. brand, but believes that there are a significant number of locations remaining worldwide that meet the requirements of a TIFFANY & CO. location.

• To increase store productivity.

Over the years, the Company has opened smaller size stores which have contributed to higher store productivity. In addition, the Company is focused on growing sales per square foot by increasing consumer traffic and the conversion rate (the percentage of shoppers who actually purchase) through targeted advertising, ongoing sales training and customer-focused initiatives.

• To achieve improved operating margins.

Management's long-term objective is to improve gross margin (gross profit as a percentage of net sales) through greater product manufacturing/sourcing efficiencies (including increased direct rough-diamond sourcing and internal manufacturing) and increased use of distribution center capacity. Management also intends to improve the ratio of selling, general and administrative expenses to net sales by controlling expenses and enhancing productivity so that sales growth can generate a higher rate of earnings growth.

• To enhance customer awareness.

The TIFFANY & CO. brand (the "Brand") is the single most important asset of the Company and is inherent in consumer aspirations for the Brand. Management will continue to invest in marketing and public relations programs designed to increase customer awareness of the Brand and will continue to monitor the strength of the Brand through market research.

• To maintain an active product development program.

The Company continues to invest in product development in order to introduce new collections and add new and innovative products to existing lines.

• To increase its control over product supply through greater direct diamond sourcing and internal jewelry manufacturing.

The Company's diamond processing operations purchase, sort, cut and/or polish rough diamonds for use in Company merchandise. The Company will continue to seek additional sources of diamonds which, combined with its internal manufacturing operations, are intended to secure adequate product supplies and favorable costs.

• To provide superior customer service.

Maintaining the strength of the Brand requires that the Company make superior customer service a top priority, which it achieves by employing highly qualified sales and customer service professionals and maintaining ongoing training programs.

• Net sales decreased 3% to $2,859,997,000 for the year ended January 31, 2009. Sales in most markets were affected by the global economic downturn, especially during the fourth quarter.

• Worldwide comparable store sales decreased 9% on a constant-exchange-rate basis (see "Non-GAAP Measures" below). For the full year, comparable TIFFANY & CO. store sales on a constant-exchange-rate basis decreased 14% in the Americas, decreased 4% in Asia-Pacific due to a decline in Japan comparable store sales, and increased 6% in Europe due to growth in most countries. However, comparable store sales slowed substantially in the fourth quarter, declining 31% in the Americas and 13% in Asia-Pacific, while Europe was equal to the prior year.

• The Company opened 22 TIFFANY & CO. retail locations, net of closings, which increased its worldwide store base by 12% and by 9% on a square foot basis.

• Net earnings were $220,022,000, or 32% lower than the prior year, and net earnings per diluted share were $1.74, or 26% lower than the prior year. Included in net earnings were the following items:

• A pre-tax charge of $97,839,000, or $0.46 per diluted share after tax, resulting from staffing reductions;

• A $12,373,000 pre-tax impairment charge, or $0.07 per diluted share after tax, for an investment in Target Resources plc, a mining and exploration company;

• A pre-tax charge of $7,549,000, or $0.04 per diluted share after tax, due to inventory and other charges related to the anticipated closing of the Company's IRIDESSE stores; and

• A $3,382,000 pre-tax charge, or $0.02 per diluted share after tax, for the closing of a diamond polishing facility in Yellowknife, Northwest Territories.

• The Company secured additional financing in order to refinance certain maturing debt as well as to provide for the Company's long-term working capital needs.

• The Company repurchased 5.4 million shares of its Common Stock. The Company suspended share repurchases during the third quarter of 2008 in order to conserve cash.

• In May 2008, the Company's Board of Directors approved a 13% increase in the quarterly dividend rate.

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 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

measurement 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:

                                                          2008                                                  2007

                                                         Constant-                                         Constant-
                          GAAP        Translation         Exchange           GAAP        Translation       Exchange-
                      Reported             Effect       Rate Basis       Reported             Effect      Rate Basis


Net Sales:
Worldwide                   (3 )%               1  %            (4 )%          15  %               2 %            13  %
Americas                   (10 )%               -              (10 )%          12  %               1 %            11  %
U.S.                       (11 )%               -              (11 )%          10  %               -              10  %
Asia-Pacific                 8  %               7  %             1  %          14  %               2 %            12  %
Japan                        7  %              14  %            (7 )%           1  %               -               1  %

Comparable Store Sales:
Worldwide                   (7 )%               2  %            (9 )%           8  %               1 %             7  %
Americas                   (14 )%               -              (14 )%           8  %               -               8  %
U.S.                       (16 )%               -              (16 )%           7  %               -               7  %
Asia-Pacific                 4  %               8  %            (4 )%           7  %               2 %             5  %
Japan                        4  %              14  %           (10 )%          (4 )%               1 %            (5 )%
Other Asia-Pacific           3  %              (2 )%             5  %          31  %               5 %            26  %
Europe                       1  %              (5 )%             6  %          22  %               9 %            13  %

In the first quarter of 2008, the Company changed its method of accounting for inventories held by its U.S. subsidiaries and foreign branches from the last-in, first-out ("LIFO") method to the average cost method. The average cost method is now used worldwide by the Company. All prior periods have been revised. See "Item 8. Financial Statements and Supplementary Data - Note B. Summary of Significant Accounting Policies."

Certain operating data as a percentage of net sales were as follows:

                                                               2008        2007        2006


Net sales                                                   100.0 %     100.0 %     100.0 %
Cost of sales                                                42.5        43.6        42.5


Gross profit                                                 57.5        56.4        57.5
Other operating income                                          -         3.5           -
Restructuring charges                                         3.4           -           -
Selling, general and administrative expenses                 41.0        41.0        39.5


Earnings from continuing operations                          13.1        18.9        18.0
Interest expense, financing costs and other income, net       1.0         0.2         0.4


Earnings from continuing operations before income taxes      12.1        18.7        17.6
Provision for income taxes                                    4.4         6.8         6.4


Net earnings from continuing operations                       7.7        11.9        11.2
Loss from discontinued operations, net of tax                   -        (0.9 )      (0.5 )


Net earnings                                                  7.7 %      11.0 %      10.7 %

                                   Net Sales

Effective with the first quarter of 2008, management has changed segment
reporting to reflect operating results for the following regions: the Americas,
Asia-Pacific and Europe (see "Item 8. Financial Statements and Supplementary
Data - Note A. Nature of Business"). Net sales were as follows:


                                                                     2008 vs. 2007     2007 vs. 2006
(in thousands)          2008            2007            2006              % Change          % Change


Americas         $ 1,586,636     $ 1,759,868     $ 1,577,744             (10 )%              12%
Asia-Pacific         921,988         853,759         748,004               8  %              14%
Europe               284,630         243,579         185,398              17  %              31%
Other                 66,743          81,565          49,588             (18 )%              64%

                 $ 2,859,997     $ 2,938,771     $ 2,560,734              (3 )%              15%

Comparable Store Sales. Reference will be made to comparable store sales below. Comparable store sales include only sales transacted in company-operated stores and boutiques. A store's sales are included in comparable store sales when the store has been open for more than 12 months. In markets other than Japan, sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. In Japan (included in the Asia-Pacific segment), sales for a new store or boutique are not included if the store or boutique was relocated from one department store to another or from a department store to a free-standing

location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.

Americas. The Americas segment includes sales transacted in TIFFANY & CO. stores in the U.S., Canada and Latin/South America, as well as sales of TIFFANY & CO. products in certain of those markets through business-to-business, Internet, catalog and wholesale operations.

The following table presents the Americas and its components as a percentage of worldwide net sales:

                                                 2008      2007      2006


               United States
               New York Flagship store             10 %      10 %      10 %
               Branch stores                       35 %      38 %      40 %
               Internet and catalog                 5 %       6 %       7 %
               Business-to-business                 1 %       2 %       2 %

               Total United States                 51 %      56 %      59 %
               Canada and Latin/South America       4 %       4 %       3 %

                                                   55 %      60 %      62 %

Total sales in the Americas decreased $173,232,000, or 10%, in 2008 due to a decline in the number of units sold. This decrease included a 16%, or $220,999,000, decline in U.S. comparable store sales, partly offset by $58,065,000 of sales in U.S. non-comparable stores. The U.S. comparable store sales decline consisted of a 9% decrease in New York Flagship store sales and a 16% decline in comparable branch store sales. During the year, especially in the first half, the New York Flagship store benefited from increased sales to foreign tourists. In 2008, the Company opened six stores in the Americas. Internet and catalog sales in the U.S. decreased $18,655,000, or 10%, in 2008 due to a decrease in the number of orders shipped.

Total sales in the Americas increased $182,124,000, or 12%, in 2007 equally due to an increase in the average sales amount per unit and in the number of units sold. This increase included a 7%, or $94,451,000, sales increase in comparable U.S. retail stores and $51,478,000 of non-comparable U.S. stores. The U.S. comparable store sales increase in 2007 consisted of a 21% increase in New York Flagship store sales and a 4% increase in comparable branch store sales. In 2007, the Company opened eight stores and closed one in the Americas. Internet and catalog sales in the U.S. increased $8,049,000, or 5%, in 2007 due to an increase in the number of orders shipped.

Asia-Pacific. The Asia-Pacific segment includes sales transacted in TIFFANY & CO. stores in that region, as well as sales of TIFFANY & CO. products in certain markets through business-to-business, Internet and wholesale operations. The following table presents Asia-Pacific and its components as a percentage of worldwide net sales:

                                           2008      2007      2006


                     Japan                   19 %      17 %      19 %
                     Other Asia-Pacific      13 %      12 %      10 %


                                             32 %      29 %      29 %

Total sales in Asia-Pacific increased $68,229,000, or 8%, in 2008 due to an increase in the average sales amount per unit. This increase included comparable store sales growth of 4%, or $28,485,000, and non-comparable store sales of $33,178,000. On a constant-exchange-rate

basis, Asia-Pacific sales increased 1% in 2008, while comparable store sales decreased 4% due to a 10% decline in Japan partly offset by a 5% increase in other countries. In 2008, the Company opened 10 stores and closed one in Asia-Pacific.

Total sales in Asia-Pacific increased $105,755,000, or 14%, in 2007 due to an increase in the average sales amount per unit. This increase included comparable store sales growth of 7%, or $45,221,000, and non-comparable store sales of $50,633,000. On a constant-exchange-rate basis, Asia-Pacific sales increased 12% in 2007 and comparable store sales increased 5% due to a 26% increase in countries other than Japan, partly offset by a 5% decline in Japan. In 2007, the Company opened 10 stores and closed three in Asia-Pacific.

Europe. The Europe segment includes sales transacted in TIFFANY & CO. stores in that region, as well as sales of TIFFANY & CO. products in certain markets through business-to-business, Internet
and wholesale operations. Europe represented 10%, 8% and 7% of worldwide net sales in 2008, 2007 and 2006. The United Kingdom represents approximately half of European sales.

Total sales in Europe increased $41,051,000, or 17%, in 2008 due to an increase in the number of units sold. This increase included non-comparable store sales of $34,910,000. On a constant-exchange-rate basis, sales in Europe increased 25% in 2008 and comparable store sales rose by 6%, reflecting growth in the United Kingdom and most Continental European markets. In 2008, the Company opened seven stores in Europe.

Total sales in Europe in 2007 increased $58,181,000, or 31%, due to an increase in the number of units sold. This increase included comparable store sales growth of 22%, or $32,634,000, and non-comparable store sales of $13,542,000. On a constant-exchange-rate basis, sales in Europe increased 22% in 2007 and comparable store sales rose 13%, reflecting strong growth in all markets. In 2007, the Company opened three stores in Europe.

Other. Other includes all non-reportable segments. Sales in Other consist primarily of wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company's needs. In addition, Other includes worldwide sales made by businesses operated under trademarks or trade names other than TIFFANY & CO., such as IRIDESSE, and earnings received from third-party licensing agreements. In January 2009, management committed to a plan to close IRIDESSE stores as agreements are reached with landlords and as inventory is sold (see "Item 8. Financial Statements and Supplementary Data - Note C. Dispositions").

Other sales declined $14,822,000, or 18%, in 2008 and increased $31,977,000, or 64%, in 2007. The decrease in sales in 2008 was attributed to lower wholesale sales of diamonds that were deemed not suitable for the Company's needs, while the converse occurred in 2007. Wholesale diamond sales were $54,083,000 in 2008, $70,407,000 in 2007 and $39,848,000 in 2006.

Store Data. Gross square footage of Company-operated TIFFANY & CO. stores increased 9% to 935,000 in 2008, following a 9% increase to 860,000 in 2007. Sales per gross square foot generated by those stores were $2,603 in 2008, $2,890 in 2007 and $2,746 in 2006.

Gross margin (gross profit as a percentage of net sales) improved 1.1 percentage points in 2008 and declined 1.1 percentage points in 2007. The primary components of the net increase in 2008 were: (i) a 0.7 percentage point improvement due to a $19,212,000 pre-tax charge in the prior year related to management's decision to discontinue certain watch models; (ii) a 0.3 percentage point improvement due to decreased low-margin wholesale sales of diamonds; and
(iii) the benefit from the Company's precious metals hedging program. The primary components of the net decline in

2007 were: (i) a 0.7 percentage point decline due to the previously-mentioned charge to discontinue certain watch models; (ii) a 0.6 percentage point decline due to increased low-margin wholesale sales of diamonds; which was partially offset by (iii) a 0.2 percentage point improvement due to the leverage effect of fixed product-related costs, which includes costs associated with merchandising and distribution.

The Company adjusts its retail prices from time to time to address specific market conditions, product cost increases and longer-term changes in foreign currencies/U.S. dollar relationships. Among the market conditions that the Company addresses is consumer demand for the product category involved. Consumer demand is influenced by consumer confidence and competitive pricing conditions. Management has made no determination to reduce or increase prices across all merchandise categories or across the jewelry category, but will continue to address product pricing on a case-by-case basis, as it did in 2008 when it reduced prices on diamond engagement rings in the U.S. The Company uses a limited number of derivative instruments to mitigate foreign exchange and precious metal price exposures (see "Item 8. Financial Statements and Supplementary Data - Note J. Financial Instruments").

In 2007, the Company entered into a sale-leaseback arrangement for the land and multi-tenant building housing a TIFFANY & CO. store in Tokyo's Ginza shopping district. The Company secured a long-term lease and is leasing back the portion of the property that it occupied immediately prior to the transaction. The transaction resulted in a pre-tax gain of $105,051,000 and a deferred gain of $75,244,000, which will be amortized in selling, general and administrative expenses over a 15-year period. The pre-tax gain represents the profit on the sale of the property in excess of the present value of the minimum lease payments. The lease is accounted for as an operating lease. The lease expires in 2032; however, the Company has options to terminate the lease in 2022 and 2027 without penalty.

To address the continuing economic downturn, the Company has implemented various cost reduction initiatives, one of which was a reduction of approximately 10% of the Company's total employee base, primarily in the U.S. The Company believes these reductions more closely align staffing with anticipated sales levels. Associated with this reduction, the Company recorded a pre-tax charge of $97,839,000. This charge included $63,005,000 related to pension and postretirement medical benefits, $33,166,000 related to severance costs and $1,668,000 primarily related to stock-based compensation. See "Item 8. Financial Statements and Supplementary Data - Note D. Restructuring Charges."

Selling, General and Administrative ("SG&A") Expenses

SG&A expenses decreased $32,398,000, or 3%, in 2008 and increased $194,236,000, or 19%, in 2007. SG&A expenses in those years are not comparable due to several nonrecurring charges recorded in those periods.

SG&A expenses in 2008 included the following nonrecurring items:

• $11,062,000 impairment charge on the investment in Target Resources plc (see "Liquidity and Capital Resources" below);

• $3,382,000 charge for the closing of a diamond polishing facility in Yellowknife, Northwest Territories (see "Item 8. Financial Statements and Supplementary Data - Note C. Dispositions"); and

• $1,249,000 charge primarily related to severance costs associated with the closing of IRIDESSE (see "Item 8. Financial Statements and Supplementary Data - Note C. Dispositions").

SG&A expenses in 2007 included the following nonrecurring items:

• $47,981,000 impairment charge on the note receivable from Tahera Diamond Corporation ("Tahera") (see "Liquidity and Capital Resources" below);

• $15,532,000 impairment charge for losses in the IRIDESSE business as a result of lower-than-expected store performance and a related reduction in future cash flow projections; and

• $10,000,000 contribution to The Tiffany & Co. Foundation, a private charitable foundation established by the Company. The contribution was made from proceeds received from the sale-leaseback of the land and multi-tenant building housing a TIFFANY & CO. store in Tokyo's Ginza shopping district.

Excluding the nonrecurring charges noted above, SG&A expenses in 2008 and 2007 would have been $1,156,899,000 and $1,131,477,000. This increase of $25,422,000, or 2%, was primarily due to increased depreciation and occupancy expenses of $22,792,000 and labor and benefits costs of $19,020,000, both of which were largely due to new and existing stores, and marketing expenses of $15,477,000, partly offset by a $37,645,000 decrease in management incentive and stock-based compensation.

Excluding the nonrecurring charges noted above, SG&A expenses increased $120,723,000, or 12%, in 2007 primarily due to increased labor and benefit costs of $42,136,000 and increased depreciation and store occupancy expenses of $37,805,000, both of which were largely due to new and existing stores, as well as an increase of $12,287,000 in marketing expenses.

The Company's SG&A expenses are largely fixed in nature. Variable costs (which include items such as variable store rent, sales commissions and fees paid to credit card companies) represent approximately one-fifth of total SG&A expenses.

                      Earnings from Continuing Operations


                                                   % of                        % of                         % of
(in thousands)                         2008       Sales*           2007       Sales*           2006        Sales*


Earnings (losses) from continuing operations:
Americas                        $   317,964        20.0 %    $  395,011        22.4 %    $  342,877        21.7 %
Asia-Pacific                        233,958        25.4 %       227,117        26.6 %       211,568        28.3 %
Europe                               58,725        20.6 %        57,385        23.6 %        31,964        17.2 %
Other                               (24,868 )     (37.3 )%      (33,038 )     (40.5 )%      (14,379 )     (29.0 )%

                                    585,779                     646,475                     572,030
Unallocated corporate
. . .