Tiffany & Co. (NYSE:TIF) today reported its financial
results for the three months (“first quarter”) ended April 30,
2017. An increase in net earnings per diluted share primarily
reflected a higher operating margin. Management is maintaining its
earnings guidance for the year.
In the first quarter:
- Worldwide net sales rose 1% to $900
million due to growth in Asia-Pacific and an increase in the
wholesale sale of diamonds, and comparable store sales were 3%
below the prior year. 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 increased 2% due to factors noted above, as well as sales
growth in Europe, and comparable store sales declined 2%. Higher
fashion and designer jewelry sales contrasted with softness in
other categories.
- Net earnings of $93 million, or $0.74
per diluted share, compared with $87 million, or $0.69 per diluted
share, a year ago.
Michael J. Kowalski, Chairman of the Board and Interim Chief
Executive Officer, said, “While these results modestly exceeded our
near-term expectations, we are focused on executing long-term
strategies to achieve stronger and sustainable performance through
product introductions, optimization of our store base, effective
marketing communications and the delivery of experiences that
resonate with our customers. In so doing, we believe TIFFANY &
CO. is well-positioned to generate an attractive total shareholder
return over the long-term.”
Net sales by region in the first quarter
were as follows:
- In the Americas, total sales of $392
million were 3% lower than the prior year and comparable store
sales declined 4%. There was no impact from currency translation on
reported sales. Sales results were geographically mixed across the
region, and management attributed the overall sales declines to
lower spending by both foreign tourists and local customers.
- In the Asia-Pacific region, total sales
of $257 million were 8% above the prior year, while comparable
store sales declined 3%. Management attributed total sales growth
to increased wholesale sales and the effect of stores opened in the
past year, while comparable store sales were affected by strong
growth in mainland China and varying degrees of softness in other
markets. On a constant-exchange-rate basis, total sales rose 9% and
comparable store sales declined 2%.
- In Japan, total sales of $128 million
were 2% below the prior year, and comparable store sales declined
1%. Management attributed the sales declines to lower spending by
Chinese tourists. On a constant-exchange-rate basis, total and
comparable store sales declined 3% and 1%, respectively.
- In Europe, total sales declined 3% to
$94 million and comparable store sales also declined 3%. On a
constant-exchange-rate basis, total sales and comparable store
sales rose 4% and 3%, respectively. Performance was generally soft
in continental Europe, while management attributed sales growth in
the United Kingdom on a constant-exchange-rate basis to spending by
local customers and foreign tourists.
- Other sales in total rose 32% to $28
million due to an increase in wholesale sales of diamonds.
- Tiffany did not open any
Company-operated stores in the first quarter and closed three. At
April 30, 2017, the Company operated 310 stores (124 in the
Americas, 84 in Asia-Pacific, 54 in Japan, 43 in Europe, and five
in the UAE), versus 308 stores a year ago (124 in the Americas, 81
in Asia-Pacific, 55 in Japan, 43 in Europe, and five in the
UAE).
Other highlights:
- Gross margin (gross profit as a
percentage of net sales) increased to 62.0% in the first quarter,
from 61.2% a year ago, primarily reflecting favorable product input
costs and a shift in sales mix toward higher margin fashion jewelry
products, partly offset by increased wholesale sales of
diamonds.
- SG&A expenses were virtually
unchanged from the prior year despite higher severance costs.
SG&A expenses as a percentage of net sales was 45.8%, versus
46.1% a year ago.
- Earnings from operations as a
percentage of net sales was 16.2% in the first quarter, compared
with 15.1% a year ago.
- The effective tax rate was 31.7% in the
first quarter, reflecting a benefit of $0.02 per diluted share 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 prior year rate of 29.0% included a
benefit of $0.05 per diluted share related to the conclusion of a
tax examination.
- Net inventories at April 30, 2017 were
5% lower than a year ago.
- The Company repurchased approximately
123,000 shares of its Common Stock in the first quarter at an
average price of approximately $93 per share and a total cost of
$11.5 million. At April 30, 2017, $299 million remained available
for repurchases under a program that authorizes the repurchase of
up to $500 million of the Company’s Common Stock and
that expires on January 31, 2019.
- The Company finished the quarter with
cash and cash equivalents and short-term investments totaling $960
million at April 30, 2017, up from $790 million a year ago. Total
debt (short-term and long-term) as a percentage of stockholders’
equity was 35% at April 30, 2017, versus 37% a year ago.
Fiscal 2017 Outlook:
Management’s outlook for the fiscal year ending January 31, 2018
(“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 and (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”). These
expectations are approximations and are based on the Company’s
plans and assumptions, including: (i) worldwide gross retail square
footage increasing 2%, net through 10 store openings, seven
relocations and seven closings; (ii) operating margin above the
prior year entirely due to an expected increase in gross margin,
with SG&A expenses increasing slightly faster than sales
growth; (iii) interest and other expenses, net of approximately $40
million; (iv) an effective income tax rate consistent with the
prior year; (v) the U.S. dollar in 2017 stronger overall than other
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 six months ending July 31, 2017 on Thursday August 24th
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 first quarter earnings 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,’ ‘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
search for a successor chief executive officer; 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; our ability to successfully control costs and execute
on, and achieve the expected benefits from, our operational and
strategic initiatives, and any difficulties or delays we encounter
in identifying a successor 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 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:
First Quarter 2017 vs. 2016 GAAP
Reported
Translation
Effect
Constant-
Exchange-
Rate Basis
Net
Sales:
Worldwide 1
%
(1 )% 2 % Americas (3 ) — (3 ) Asia-Pacific 8 (1 ) 9 Japan (2 ) 1
(3 ) Europe (3 ) (7 ) 4 Other 32 — 32
Comparable
Store Sales: Worldwide (3 )% (1 )% (2 )% Americas (4 ) —
(4 ) Asia-Pacific (3 ) (1 ) (2 ) Japan (1 ) — (1 ) Europe (3 ) (6 )
3 Other 1 — 1
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
Impairment charges 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 net pre-tax expense
($16.0 million net 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 net pre-tax expense
($8.0 million net 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
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS
(Unaudited, in millions, except per share
amounts)
Three Months Ended
April 30,
2017 2016 Net sales
$ 899.6 $ 891.3
Cost of sales
342.0 345.7 Gross profit
557.6 545.6 Selling, general and administrative
expenses
412.0 411.0 Earnings from operations
145.6 134.6 Interest and other expenses, net
9.5 11.5 Earnings from operations before
income taxes
136.1 123.1 Provision for income taxes
43.2 35.6 Net earnings
$ 92.9
$ 87.5 Net earnings per share: Basic
$
0.75 $ 0.69 Diluted
$ 0.74 $
0.69 Weighted-average number of common shares: Basic
124.6 126.1 Diluted
125.3 126.5
TIFFANY & CO. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, in millions)
April 30,
2017
January 31,
2017
April 30,
2016
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 960.0 $ 985.8 $ 789.9 Accounts
receivable, net
233.1 226.8 221.5 Inventories, net
2,197.4 2,157.6 2,320.1 Prepaid expenses and other current
assets
204.0 203.4 190.7 Total current
assets
3,594.5 3,573.6 3,522.2 Property, plant and
equipment, net
920.8 931.8 946.0 Other assets, net
590.9 592.2 680.0
$
5,106.2 $ 5,097.6 $ 5,148.2
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
190.6 $ 228.7 $ 220.1 Current portion of long-term debt
— — 92.5 Accounts payable and accrued liabilities
281.4 312.8 300.4 Income taxes payable
35.3 22.1 36.6
Merchandise credits and deferred revenue
75.2 69.2
68.2 Total current liabilities
582.5 632.8
717.8 Long-term debt
880.5 878.4 790.2
Pension/postretirement benefit obligations
322.8 318.6 436.4
Other long-term liabilities
200.8 193.5 188.1 Deferred gains
on sale-leasebacks
44.9 45.9 56.4 Stockholders’ equity
3,074.7 3,028.4 2,959.3
$
5,106.2 $ 5,097.6 $ 5,148.2
TIF-E
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version on businesswire.com: http://www.businesswire.com/news/home/20170524005421/en/
TIFFANY & CO.Mark L. Aaron, 212-230-5301mark.aaron@tiffany.com
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