Tiffany & Co. (NYSE:TIF) today reported its financial
results for the three months (“second quarter”) and six months
(“first half”) ended July 31, 2017. In both periods, modest net
sales increases and improved operating margins contributed to
growth in diluted earnings per share. Management maintained its
sales and earnings guidance for the full year ending January 31,
2018 (“fiscal 2017”), and provided guidance for the second half of
the year.
In the second quarter:
- Worldwide net sales increased 3% to
$960 million, while comparable store sales declined 2%. Management
noted an increase in wholesale sales of diamonds, increased
wholesale sales in the Asia-Pacific region and strong e-commerce
sales growth. Overall, growth in fashion and designer jewelry sales
contrasted with softness in other jewelry categories. On a
constant-exchange-rate basis that excludes the effect of
translating foreign-currency-denominated sales into U.S. dollars
(see “Non-GAAP Measures”), worldwide net sales rose 4% and
comparable store sales declined 1% due to the factors noted
above.
- Net earnings rose 9% to $115 million,
or $0.92 per diluted share, from $106 million, or $0.84 per diluted
share in the prior year.
In the first half:
- Worldwide net sales of $1.9 billion
were 2% higher than the prior year, while comparable store sales
were 2% below the prior year, due to similar trends as noted above.
On a constant-exchange-rate basis, worldwide net sales rose 3% and
comparable store sales declined 1%.
- Net earnings rose 8% to $208 million,
or $1.66 per diluted share, from $193 million, or $1.53 per diluted
share, a year ago.
Michael J. Kowalski, Chairman of the Board and Interim Chief
Executive Officer, said, “While net earnings rose in the first
half, we remain determined to drive comparable store sales growth
and stronger, sustainable earnings growth through a continued focus
on product design innovation in jewelry and luxury accessories,
further optimization of our store base, more impactful marketing
communications and highly effective customer engagement both
in-store and online. We were delighted to recently announce the
appointment of a new Chief Executive Officer, Alessandro Bogliolo,
an accomplished jewelry and luxury retail executive who will soon
join Tiffany. My fellow directors and I believe that, under his
leadership, the management team can realize the potential of our
extraordinary global brand.”
Net sales by region were as
follows:
- In the Americas, total sales rose 1% to
$439 million in the quarter and declined 1% to $830 million in the
first half; comparable store sales declined 1% and 2%,
respectively. Results were geographically mixed across the region
(with no disruptive effect from the New York flagship store), and
management attributed sales softness primarily to lower spending by
foreign tourists. Currency translation had no effect on reported
sales.
- In the Asia-Pacific region, total sales
of $235 million in the quarter and $492 million in the first half
were 2% and 5%, respectively, above the prior year; comparable
store sales declined 7% and 5%, respectively. Total sales growth
was due to increased wholesale sales, as well as new stores, while
the decline in comparable store sales included strong growth in
mainland China that was more than offset by softness in other
countries, which management attributed to lower foreign tourist
spending. On a constant-exchange-rate basis, total sales increased
2% in the quarter and 5% in the first half, and comparable store
sales declined 7% and 4%, respectively.
- In Japan, total sales of $140 million
in the quarter were 1% above the prior year while sales of $268
million in the first half were approximately unchanged from the
prior year; comparable store sales rose 3% and 1%, respectively.
Management attributed retail sales growth to spending by local
customers in both periods, while wholesale sales declined. On a
constant-exchange-rate basis, total sales rose 7% in the quarter
and 2% in the first half, resulting from comparable store sales
increasing 9% and 4%, respectively, and lower wholesale sales.
- In Europe, total sales of $114 million
in the quarter were 3% above the prior year and sales of $208
million in the first half were equal to the prior year, reflecting
increased wholesale sales and the effect of new stores; comparable
store sales declined 2% in both periods. Retail sales results were
geographically mixed across the region. On a constant-exchange-rate
basis, total sales rose 5% in the quarter and 4% in the first half;
comparable store sales were unchanged in the quarter and rose 1% in
the first half.
- Other sales increased 74% to $32
million in the quarter and rose 51% to $61 million in the first
half. The increases were entirely due to increased wholesale sales
of diamonds while comparable store sales declined 8% and 3%,
respectively.
- Tiffany has opened three
Company-operated stores in the first half of the year and closed
four. At July 31, 2017, the Company operated 312 stores (124 in the
Americas, 85 in Asia-Pacific, 54 in Japan, 44 in Europe, and five
in the UAE), versus 311 stores a year ago (125 in the Americas, 83
in Asia-Pacific, 55 in Japan, 43 in Europe, and five in the
UAE).
Other highlights:
- Gross margins (gross profit as a
percentage of net sales) of 62.3% in the second quarter and 62.2%
in the first half were higher than 61.9% and 61.6%, respectively,
in the prior year. The increases reflected favorable product input
costs and a shift in sales mix toward higher-margin jewelry, partly
offset by the effect of increased wholesale sales of diamonds.
- SG&A expenses rose 4% in the second
quarter and 2% in the first half, due to increased labor and
incentive compensation costs and increased marketing spending.
SG&A expenses as a percentage of net sales were 43.4% in the
second quarter, versus 43.2% a year ago, and 44.6% in the first
half, unchanged from the prior year.
- Earnings from operations as a
percentage of net sales was 18.9% in the second quarter and 17.6%
in the first half, versus 18.8% and 17.0%, respectively, in the
prior year.
- Interest and other expenses, net
declined in both the second quarter and first half due to lower
interest expense and a reduction in foreign currency transaction
losses.
- The effective income tax rates were
33.3% in the second quarter and 32.6% in the first half, compared
with 34.5% and 32.1%, respectively, in the prior year. The rate in
both periods of the current year included a benefit from the
implementation of a new accounting standard related to the
treatment of excess tax benefits from the vesting or exercise of
share-based compensation. The rate in the first half of the prior
year included a benefit from the conclusion of a tax
examination.
- Net inventories of $2.2 billion at July
31, 2017 were 4% lower than a year ago primarily due to a reduction
in finished goods inventories.
- In the second quarter and first half,
the Company repurchased approximately 230,000 and 353,000 shares,
respectively, of its Common Stock at average prices of
approximately $91 and $92 per share, respectively, and total costs
of $21 million and $32 million, respectively. At July 31, 2017,
$278 million remained available for repurchases under the program
that authorizes the repurchase of up to $500 million of the
Company’s Common Stock that expires on January 31, 2019.
- Cash and cash equivalents and
short-term investments at July 31, 2017 rose to $1.0 billion from
$720 million a year ago. Total debt (short-term and long-term) as a
percentage of stockholders’ equity was 35% at July 31, 2017, versus
37% a year ago.
Fiscal 2017 Outlook:
Management’s outlook for fiscal 2017 calls for: (i) worldwide
net sales increasing over the prior year by a low-single-digit
percentage as reported and on a constant-exchange-rate basis, (ii)
net earnings per diluted share increasing by a high-single-digit
percentage over 2016’s earnings per diluted share of $3.55 and by a
mid-single-digit-percentage over 2016’s earnings per diluted share
(excluding charges) of $3.75 (see “Non-GAAP Measures”) and (iii)
earnings per diluted share in the second half of fiscal 2017
increasing over the prior year’s second half, with the growth
occurring in the fourth quarter. These expectations are
approximations and are based on the Company’s plans and assumptions
for the full year, including: (i) worldwide gross retail square
footage increasing 2%, net through 10 store openings, seven
relocations and seven closings; (ii) operating margin in line with
the prior year due to an expected increase in gross margin offset
by SG&A expense growth higher than sales growth; (iii) interest
and other expenses, net of $35-$40 million; (iv) an effective
income tax rate of approximately 33%; (v) no meaningful effect in
fiscal 2017 from the U.S. dollar versus foreign currencies on a
year-over-year basis; and (vi) minimal benefit to net earnings per
diluted share from share repurchases.
Management also expects for fiscal 2017: (i) net cash provided
by operating activities of approximately $700 million and (ii) free
cash flow (see “Non-GAAP Measures”) of approximately $450 million.
These expectations are approximations and are based on the
Company’s plans and assumptions, including: (i) net inventories
unchanged from the prior year, (ii) capital expenditures of $250
million and (iii) net earnings in line with management’s
expectations, as described above.
Today’s Conference Call:
The Company will conduct a conference call today at 8:30 a.m.
(Eastern Time) to review actual results and the outlook. Please
click on http://investor.tiffany.com (“Events and
Presentations”).
Next Scheduled Announcement:
The Company expects to report its financial results for the
three and nine months ending October 31, 2017 on Wednesday November
29th before the market opens. To be notified of future
announcements, please register at http://investor.tiffany.com
(“E-Mail Alerts”).
Tiffany is the internationally-renowned jeweler founded in New
York in 1837. Through its subsidiaries, Tiffany & Co.
manufactures products and operates TIFFANY & CO. retail stores
worldwide, and also engages in direct selling through Internet,
catalog and business gift operations. Please visit www.tiffany.com
for additional information.
Forward-Looking Statements:
The historical trends and results reported in this document and
on our second quarter earnings conference call should not be
considered an indication of future performance. Further, statements
contained in this document and made on such call that are not
statements of historical fact, including those that refer to plans,
assumptions and expectations for the current fiscal year and future
periods, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, but are not limited to, the statements under
“Fiscal 2017 Outlook” as well as statements that can be identified
by the use of words such as ‘expects,’ ‘projects,’ ‘anticipates,’
‘assumes,’ ‘forecasts,’ ‘plans,’ ‘believes,’ ‘intends,’
‘estimates,’ ‘pursues,’ ‘scheduled,’ ‘continues,’ ‘outlook,’ ‘may,’
‘will,’ ‘can,’ ‘should’ and variations of such words and similar
expressions. Examples of forward-looking statements include, but
are not limited to, statements we make regarding the Company’s
plans, assumptions, expectations, beliefs and objectives with
respect to store openings and closings; product introductions;
sales; sales growth; sales trends; store traffic; the Company’s
strategy and initiatives and the pace of execution thereon; the
Company’s objectives to compete in the global luxury market and to
improve financial performance; retail prices; gross margin;
operating margin; expenses; interest and other expenses, net;
effective income tax rate; net earnings and net earnings per share;
share count; inventories; capital expenditures; cash flow;
liquidity; currency translation; macroeconomic conditions; growth
opportunities; litigation outcomes and recovery related thereto;
contributions to Company pension plans; and certain ongoing or
planned real estate, product, marketing, retail, customer
experience, manufacturing, supply chain, information systems
development, upgrades and replacement, and other operational and
strategic initiatives.
These forward-looking statements are based upon the current
views and plans of management, speak only as of the date on which
they are made and are subject to a number of risks and
uncertainties, many of which are outside of our control. Actual
results could therefore differ materially from the planned, assumed
or expected results expressed in, or implied by, these
forward-looking statements. While we cannot predict all of the
factors that could form the basis of such differences, key factors
include, but are not limited to: global macroeconomic and
geopolitical developments; changes in interest and foreign currency
rates; changes in taxation policies and regulations; shifting
tourism trends; regional instability; violence (including terrorist
activities); political activities or events; weather conditions
that may affect local and tourist consumer spending; changes in
consumer confidence, preferences and shopping patterns, as well as
our ability to accurately predict and timely respond to such
changes; shifts in the Company’s product and geographic sales mix;
variations in the cost and availability of diamonds, gemstones and
precious metals; adverse publicity regarding the Company and its
products, the Company’s third-party vendors or the diamond or
jewelry industry more generally; any non-compliance by third-party
vendors and suppliers with the Company’s sourcing and quality
standards, codes of conduct, or contractual requirements as well as
applicable laws and regulations; changes in our competitive
landscape; disruptions impacting the Company’s business and
operations; failure to successfully implement or make changes to
the Company’s information systems; gains or losses in the trading
value of the Company’s stock, which may impact the amount of stock
repurchased; the Company’s ability to successfully control costs
and execute on, and achieve the expected benefits from, the
operational and strategic initiatives; and any adverse developments
or delays encountered by the Company in securing work authorization
for, or otherwise onboarding, its next chief executive officer.
Developments relating to these and other factors may also warrant
changes to the Company’s operating and strategic plans, including
with respect to store openings, closings and renovations, capital
expenditures, information systems development, inventory
management, and continuing execution on, or timing of, the
aforementioned initiatives. Such changes could also cause actual
results to differ materially from the expected results expressed
in, or implied by, the forward-looking statements.
Additional information about potential risks and uncertainties
that could affect the Company’s business and financial results is
included under “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the
Company’s Annual Report on Form 10-K for the fiscal year ended
January 31, 2017 and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the Company’s
most recent quarterly report on Form 10-Q. Readers of these
documents should consider the risks, uncertainties and factors
outlined above and in the Form 10-K in evaluating, and are
cautioned not to place undue reliance on, the forward-looking
statements contained herein. The Company undertakes no obligation
to update or revise any forward-looking statements to reflect
subsequent events or circumstances, except as required by
applicable law or regulation.
TIFFANY & CO. AND SUBSIDIARIES
(Unaudited)
NON-GAAP MEASURES
The Company reports information in accordance with U.S.
Generally Accepted Accounting Principles (“GAAP”). Internally,
management also monitors and measures its performance using certain
sales and earnings measures that include or exclude amounts, or are
subject to adjustments that have the effect of including or
excluding amounts, from the most directly comparable GAAP measure
(“non-GAAP financial measures”). The Company presents such non-GAAP
financial measures in reporting its financial results to provide
investors with useful supplemental information that will allow them
to evaluate the Company's operating results using the same measures
that management uses to monitor and measure its performance. The
Company's management does not, nor does it suggest that investors
should, consider non-GAAP financial measures in isolation from, or
as a substitute for, financial information prepared in accordance
with GAAP. These non-GAAP financial measures presented here may not
be comparable to similarly-titled measures used by other
companies.
Net Sales
The Company's reported net sales reflect either a
translation-related benefit from strengthening foreign currencies
or a detriment from a strengthening U.S. dollar. Internally,
management monitors and measures its sales performance on a
non-GAAP basis that eliminates the positive or negative effects
that result from translating sales made outside the U.S. into U.S.
dollars (“constant-exchange-rate basis”). Sales on a
constant-exchange-rate basis are calculated by taking the current
year’s sales in local currencies and translating them into U.S.
dollars using the prior year’s foreign currency exchange rates.
Management believes this constant-exchange-rate basis provides a
useful supplemental basis for the assessment of sales performance
and of comparability between reporting periods. The following table
reconciles the sales percentage increases (decreases) from the GAAP
to the non-GAAP basis versus the previous year:
Second Quarter 2017 vs. 2016 First Half
2017 vs. 2016
GAAPReported
TranslationEffect
Constant-Exchange-Rate Basis
GAAPReported
TranslationEffect
Constant-Exchange-Rate Basis
Net
Sales:
Worldwide 3 % (1 )% 4 % 2 % (1 )% 3 % Americas 1 — 1 (1 ) — (1 )
Asia-Pacific 2 — 2 5 — 5 Japan 1 (6 ) 7 — (2 ) 2 Europe 3 (2 ) 5 —
(4 ) 4 Other 74 — 74 51 — 51
Comparable Store
Sales:
Worldwide (2 )% (1 )% (1 )% (2 )% (1 )% (1 )% Americas (1 ) — (1 )
(2 ) — (2 ) Asia-Pacific (7 ) — (7 ) (5 ) (1 ) (4 ) Japan 3 (6 ) 9
1 (3 ) 4 Europe (2 ) (2 ) — (2 ) (3 ) 1 Other (8 ) — (8 ) (3 ) — (3
)
Net Earnings
Internally, management monitors and measures its earnings
performance excluding certain items listed below. Management
believes excluding such items provides a useful supplemental basis
for the assessment of the Company's results relative to the
corresponding period in the prior year. The following tables
reconcile certain GAAP amounts to non-GAAP amounts:
(in millions, except per share
amounts) GAAP
Impairmentcharges a
Non-GAAP
Year Ended January 31, 2017 SG&A
expenses $ 1,769.1 $ (38.0 ) $ 1,731.1 As a % of sales
44.2 % 43.3 % Earnings from
operations 721.2 38.0 759.2 As a % of sales
18.0 % 19.0 % Provision for income taxes b
230.5 14.0 244.5
Net earnings 446.1 24.0
470.1 Diluted earnings per share *
3.55 0.19 3.75 *
Amounts may not add due to rounding. a Expenses
associated with the following:
•
$25.4 million of pre-tax expense ($16.0 million after tax
expense, or $0.13 per diluted share) associated with an asset
impairment charge related to software costs capitalized in
connection with the development of a new finished goods inventory
management and merchandising information system; and
•
$12.6 million of pre-tax expense ($8.0 million after tax expense,
or $0.06 per diluted share) associated with impairment charges
related to financing arrangements with diamond mining and
exploration companies. b The income tax effect resulting
from the adjustments has been calculated as both current and
deferred tax benefit (expense), based upon the tax laws and
statutory income tax rates applicable in the tax jurisdiction(s) of
the underlying adjustment.
Free Cash Flow
Internally, management monitors its cash flow on a non-GAAP
basis. Free cash flow is calculated by deducting capital
expenditures from net cash provided by operating activities. The
ability to generate free cash flow demonstrates how much cash the
Company has available for discretionary and non-discretionary
purposes after deduction of capital expenditures. The Company's
operations require regular capital expenditures for the opening,
renovation and expansion of stores and distribution and
manufacturing facilities as well as ongoing investments in
information technology. Management believes this provides a useful
supplemental basis for assessing the Company’s operating cash
flows.
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS(Unaudited, in millions, except per share amounts)
Three Months EndedJuly 31,
Six Months EndedJuly 31,
2017 2016
2017 2016 Net sales
$
959.7 $ 931.6
$ 1,859.3 $ 1,822.9 Cost
of sales
361.5 354.5
703.5 700.3
Gross profit
598.2 577.1
1,155.8 1,122.6
Selling, general and administrative
expenses
416.9 402.2
828.9 813.1
Earnings from operations
181.3 174.9
326.9 309.5
Interest and other expenses, net
8.8 13.4
18.2 24.8 Earnings from operations
before income taxes
172.5 161.5
308.7 284.7
Provision for income taxes
57.5 55.8
100.8 91.5 Net earnings
$ 115.0
$ 105.7
$ 207.9 $ 193.2
Net earnings per share: Basic
$ 0.92 $
0.84
$ 1.67 $ 1.54 Diluted
$
0.92 $ 0.84
$ 1.66 $ 1.53
Weighted-average number of common shares: Basic
124.5 125.3
124.6 125.7 Diluted
125.1 125.6
125.2 126.1
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Unaudited, in millions)
July 31,2017
January 31,2017
July 31,2016
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 1,043.5 $ 985.8 $ 720.1 Accounts
receivable, net
223.3 226.8 216.4 Inventories, net
2,236.9 2,157.6 2,324.8 Prepaid expenses and other current
assets
218.3 203.4 215.4 Total current
assets
3,722.0 3,573.6 3,476.7 Property, plant and
equipment, net
939.6 931.8 944.8 Other assets, net
608.0 592.2 681.4
$
5,269.6 $ 5,097.6 $ 5,102.9
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
235.0 $ 228.7 $ 207.1 Current portion of long-term debt
— — 94.8 Accounts payable and accrued liabilities
301.4 312.8 300.7 Income taxes payable
32.8 22.1 30.5
Merchandise credits and deferred revenue
78.6 69.2
64.5 Total current liabilities
647.8 632.8
697.6 Long-term debt
881.1 878.4 790.5
Pension/postretirement benefit obligations
326.1 318.6 442.1
Other long-term liabilities
213.3 193.5 190.8 Deferred gains
on sale-leasebacks
43.3 45.9 53.2 Stockholders’ equity
3,158.0 3,028.4 2,928.7
$
5,269.6 $ 5,097.6 $ 5,102.9
TIF-E
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version on businesswire.com: http://www.businesswire.com/news/home/20170824005332/en/
Tiffany & Co.Mark L. Aaron,
212-230-5301mark.aaron@tiffany.com
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