(Adds dropped word "shoppers" in paragraph 1)
By Vibhuti Sharma
Aug 28 (Reuters) - Tiffany & Co's results topped Wall Street estimates on Tuesday as a heavy advertising spend drew in both affluent and more price-conscious shoppers to its stores in the Americas and China, prompting the chain to raise its annual profit forecast.
Shares of the company initially rose as much as 6.5 percent to $138.4, although they handed back much of those gains after the company said a renovation of its flagship New York store would eat into earnings this year.
Tiffany's still expected full-year profit to reach $4.65 to $4.80 per share, up from $4.50-$4.70 earlier, underscoring the success of a turnaround under Chief Executive Alessandro Bogliolo and easing any concerns over the impact of U.S-China trade tensions on a business with a big Asian connection.
Bogliolo has poured more money into technology and marketing, luring social-media celebrities such as Kendall Jenner to endorse the brand and enhance the feel and shopping experience at its outlets.
He has increased the chain's focus on less expensive fashion jewelry while also launching high-end everyday home items such as $350 gold straws and $1,500 gold paper clips.
Selling, general and administrative costs rose 20 percent to $497.6 million but the company's gross margins were also up - at 64 percent from 62.5 percent a year earlier.
"The Tiffany brand is getting it's mojo back with US consumers," Jefferies analysts said in a note.
Tiffany traditionally benefits from tourist spending in the United States with the Fifth Avenue store made famous by Audrey Hepburn generating almost 10 percent of annual sales. This time, however, it underlined that the gains both in North America and China were driven by spending by affluent locals.
Net sales in the Americas, which accounts for nearly half of total sales, rose 8 percent to $475 million. Sales in Asia Pacific grew 28 percent.
"We are encouraged by the momentum in the business globally and across product categories, which suggest that investments are nicely driving the business, despite ongoing volatility in tourist flows and foreign exchange," RBC analysts said.
Bogliolo told Reuters he believed the success of its platinum and diamond collection Paper Flowers - priced between $2,500 and $75,000 - had supported sales of other items in the same price category.
Tiffany's same-store sales rose 7 percent excluding the impact of exchange rate fluctuations, above expectations of an increase of 5.73 percent, according to Thomson Reuters I/B/E/S.
The company's net sales of $1.08 billion topped the consensus estimate of $1.04 billion. Excluding one-time items, the company earned $1.17 per share, above estimates of $1.01 per share.
The company said it had factored in a 7 cent per share impact on earnings from the renovation of the New York store, but analysts said nerves over the potential risks to business had spurred some profit-taking on a 25 percent rise in shares this year.
"The only thing I can think of is that the market is spooked by this big renovation coming up. The stock also dropped the day it was announced," said retail sector research analyst Jane Hali.
"The store accounts for less than 10 percent of the global business but it could affect the North America business." (Reporting by Vibhuti Sharma in Bengaluru; Editing by Arun Koyyur)