Growth in All Regions
Driven by Sales to Local Customers;
Company Maintains Its
Full Year Earnings Outlook
Tiffany & Co. (NYSE:TIF) today reported its financial
results for the three months (“third quarter”) and nine months
(“year-to-date”) ended October 31, 2018. Management attributed
sales growth in the third quarter to higher spending by local
customers in all regions, partly offset by lower spending
attributed to foreign tourists, primarily Chinese, in certain
regions. Planned higher strategic investment spending in the
quarter and year-to-date, which is intended to support long-term
sustainable sales growth, negatively impacted earnings; higher
gross margins and lower effective tax rates had positive effects on
net earnings. Management maintained its net earnings outlook for
the full year ending January 31, 2019 (“fiscal 2018”).
In the third quarter:
- Worldwide net sales increased 4% to
$1.0 billion, reflecting growth in all regions and in most product
categories; comparable sales rose 2%. 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 and comparable sales increased 5%
and 3%, respectively.
- Net earnings declined 5% to $95
million, from $100 million a year ago; net earnings per diluted
share declined 4% to $0.77, from $0.80 a year ago.
In the year-to-date:
- Worldwide net sales rose 10% to $3.1
billion, due to increased sales in all regions and product
categories; comparable sales rose 7%. On a constant-exchange-rate
basis, worldwide net sales and comparable sales increased 9% and
6%, respectively.
- Net earnings rose 24% to $382 million,
from $308 million a year ago; net earnings per diluted share rose
25% to $3.08, from $2.46 a year ago.
Alessandro Bogliolo, Chief Executive Officer, said, “It is worth
noting that in the third quarter our sales attributed to local
customers continued to grow at a strong rate worldwide and were
positive in every region, with particularly strong growth in
mainland China. Jewelry volumes also increased in the quarter and
year to date. This resulted in mid-single-digit net sales growth in
the quarter and even higher growth year-to-date, despite
lower-than-expected spending in the third quarter attributed to
Chinese tourists in the U.S. and Hong Kong and lower wholesale
travel-retail sales in Korea.
We are encouraged with our strategic progress on a global basis
and with customers’ reactions to our evolved brand message, product
innovation and in-store initiatives. We recently completed the
global launch of PAPER FLOWERS, a floral collection in platinum and
diamonds, introduced in the Americas TIFFANY TRUE, an innovative
engagement ring design, and customers appreciate our expanded
offerings of high jewelry and product personalization.
Our full year outlook is unchanged. We believe we have
substantial growth opportunities to pursue as a
geographically-diversified luxury brand and are not distracted by
external factors, such as the negative effects of a strong U.S.
dollar or fluctuations in tourist spending. Our teams are
truly excited about the activities planned for the holiday season
and are deeply committed to achieving the long-term growth
potential of this legendary brand.”
Net sales by region were as
follows:
- In the Americas, total net sales
increased 5% to $442 million in the third quarter and 7% to $1.3
billion in the year-to-date; comparable sales increased 5% and 7%,
respectively. Management attributed that growth in both periods to
higher spending by local customers, partly offset by lower spending
attributed to foreign tourists in the third quarter. On a
constant-exchange-rate basis, total sales rose 6% in the third
quarter and 7% in the year-to-date, and comparable sales rose 5%
and 7%, respectively.
- In Asia-Pacific, total net sales rose
4% to $294 million in the third quarter, highlighted by strong
sales growth in mainland China, along with mixed results elsewhere
which included a decline in wholesale travel-retail sales in Korea.
In the year-to-date, total net sales rose 19% to $923 million,
reflecting growth in most markets which included increased
wholesale travel-retail sales; comparable store sales rose 1% in
the quarter and 8% in the year-to-date. Management attributed the
sales growth in the year-to-date to higher spending by local
customers and foreign tourists, while sales growth in the third
quarter was entirely attributed to local customers. On a
constant-exchange-rate basis, total sales increased 6% and 18% in
the third quarter and year-to-date, respectively, and comparable
sales increased 4% and 7%, respectively.
- In Japan, total net sales rose 2% to
$142 million in the third quarter and 10% to $447 million in the
year-to-date; comparable sales rose 1% and 8%, respectively.
Management attributed the sales growth to higher spending by local
customers and foreign tourists. On a constant-exchange-rate basis,
total sales increased 3% in the third quarter and 8% in the
year-to-date, and comparable sales increased 2% and 6%,
respectively.
- In Europe, total net sales of $114
million in the third quarter and $343 million in the year-to-date
were 3% and 6%, respectively, above the prior year, with varied
results by country, and with higher spending attributed to local
customers more than offsetting lower sales attributed to foreign
tourists; comparable sales declined 3% in the quarter and were
unchanged in the year-to-date, which also reflected the negative
effect from new stores on existing store sales. On a
constant-exchange-rate basis, total sales increased 5% in the third
quarter and 3% in the year-to-date; comparable sales were unchanged
in the third quarter and declined 4% in the year-to-date.
- Other net sales of $20 million in the
third quarter and $66 million in the year-to-date were below the
prior year by 7% and 17%, respectively, primarily reflecting
reductions in wholesale sales of diamonds.
- Tiffany has opened nine
Company-operated stores in the year-to-date and closed three. At
October 31, 2018, the Company operated 321 stores (124 in the
Americas, 89 in Asia-Pacific, 55 in Japan, 48 in Europe, and five
in the UAE), versus 315 stores a year ago (125 in the Americas, 86
in Asia-Pacific, 54 in Japan, 46 in Europe, and four in the
UAE).
- Sales results by jewelry category in
the third quarter and year-to-date were as follows: Jewelry
Collections increased 8% and 15%, respectively, Engagement Jewelry
increased 2% and 7%, respectively, and Designer Jewelry sales
declined 8% and rose 3%, respectively.
Other highlights:
- Gross margins (gross profit as a
percentage of net sales) increased to 62.2% in the third quarter
and 63.1% in the year-to-date, from the prior year’s 61.5% and
62.0%, respectively. The increases largely reflected favorable
product input costs and lower wholesale sales of diamonds, as well
as sales leverage on fixed costs in the year-to-date, partly offset
by increased investment spending and a charge recorded in the third
quarter of $8.5 million ($0.05 per diluted share) for estimated net
losses from the recent bankruptcy filing of a precious metals
refiner.
- Selling, general and administrative
(“SG&A”) expenses increased 15% in both the third quarter and
year-to-date. The growth in both periods reflected increased
marketing spending, as well as higher labor and incentive
compensation, store occupancy and depreciation expenses. In
addition to the higher marketing spending, the Company also
increased strategic investment spending in the areas of technology,
visual merchandising, digital and store presentations. Management
believes this higher level of investment spending, which began in
the second quarter and is expected to continue for the remainder of
the year, is necessary to generate long-term growth.
- The effective income tax rates of 17.1%
in the third quarter and 21.6% in the year-to-date were lower than
the prior year’s rates of 33.4% and 32.9%, respectively. The
declines largely reflected the enactment in December 2017 of the
U.S. Tax Cuts and Jobs Act, as well as the recognition of income
tax benefits related to the filing of the Company’s 2017 tax
returns. The third quarter also reflected an income tax benefit
related to additional guidance issued in respect of the 2017 Tax
Act during the third quarter. The year-to-date also reflected the
recognition of an income tax benefit from the release of tax
reserves due to a lapse in a statute of limitations during the
second quarter.
- The Company spent $71 million in the
third quarter to repurchase approximately 599,000 shares of its
Common Stock at an average cost of approximately $118 per share. In
the year-to-date, the Company spent $377 million to repurchase more
than three million shares at an average cost of approximately $124
per share. The Company has $679 million of authorization remaining
to repurchase shares under a program that was approved by the
Company’s Board of Directors in May 2018 for up to $1.0 billion of
repurchases and which expires in January 2022.
- Net inventories at October 31, 2018
were 6% above the prior year.
- At October 31, 2018 cash and cash
equivalents and short-term investments totaled $655 million. Total
debt (short-term and long-term) of $949 million represented 31% of
stockholders’ equity, versus 34% a year ago.
Fiscal 2018 Outlook:
Management’s guidance for fiscal 2018 includes: (i) worldwide
net sales increasing by a high-single-digit percentage over the
prior year both as reported and on a constant-exchange-rate basis;
and (ii) net earnings in a range of $4.65 - $4.80 per diluted share
(unchanged from previous guidance). These expectations are
approximations and are based on the Company’s plans and assumptions
for the full year, including: (i) mid-single-digit comparable sales
growth, with varying degrees of growth in all regions; (ii)
worldwide gross retail square footage increasing 2%, net through 10
store openings, four closings and at least 15 relocations; (iii)
operating margin below the prior year as a result of significant
SG&A expense growth (affected by anticipated higher investment
spending in technology, marketing communications, visual
merchandising, digital and store presentations, as well as initial
expenses related to the renovation of the Company’s New York City
flagship store) at a higher rate than sales growth for the
remainder of the year, partly offset by a higher gross margin; (iv)
interest and other expenses, net in line with the prior year; (v)
an effective income tax rate in the low-to-mid-20’s; (vi) the U.S.
dollar in the fourth quarter of the year stronger on a
year-over-year basis; and (vii) EPS benefitting from share
repurchases which are expected to total approximately $400 million
for the full year.
Management also expects: (i) net cash provided by operating
activities approaching $600 million and (ii) free cash flow (see
“Non-GAAP Measures”) approaching $300 million. These expectations
are approximations and are based on the Company’s plans and
assumptions for the full year, including: (i) net inventories
increasing at or below the rate of sales growth, (ii) capital
expenditures of $280 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 sales results for the
November-December holiday period on January 18, 2019. To be
automatically notified of future announcements, please register at
http://investor.tiffany.com (“E-Mail
Alerts”).
About Tiffany & Co.:
In 1837, Charles Lewis Tiffany founded his company in New York
City where his store was soon acclaimed as the palace of jewels for
its exceptional gemstones. Since then, TIFFANY & CO. has become
synonymous with elegance, innovative design, fine craftsmanship and
creative excellence. During the 20th century fame thrived worldwide
with store network expansion and continuous cultural relevance, as
exemplified by Truman Capote’s Breakfast at Tiffany’s and the film
starring Audrey Hepburn.
Today, with more than 13,000 employees, TIFFANY & CO. and
its subsidiaries design, manufacture and market jewelry, watches
and luxury accessories – including more than 5,000 skilled artisans
who cut diamonds and craft jewelry in the Company’s workshops,
realizing its commitment to superlative quality. The Company
operates more than 300 TIFFANY & CO. retail stores worldwide as
part of its omnichannel approach. To learn more about TIFFANY &
CO. as well as its commitment to sustainability, please visit
tiffany.com.
Forward-Looking Statements:
The historical trends and results reported in this document and
on our third 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 2018 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; store productivity; the
renovation of the Company’s New York City flagship store, including
the timing and cost thereof, and the temporary expansion of its
retail operations to 6 East 57th Street; product introductions;
sales; sales growth; sales trends; store traffic; the Company’s
strategy and initiatives and the pace of execution thereon; the
amount and timing of investment spending; 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; the nature, amount or scope of charges resulting from recent
revisions to the U.S. tax code; net earnings and net
earnings per share; share count; inventories; capital expenditures;
cash flow; liquidity; currency translation; macroeconomic and
geopolitical conditions; growth opportunities; litigation outcomes
and recovery related thereto; amounts recovered under Company
insurance policies; 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 initiatives and strategic priorities.
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 (including
changes effected by the recent revisions to the U.S. tax
code) or changes in the guidance related to, or interpretation of,
such policies and regulations; shifting tourism trends; regional
instability; violence (including terrorist activities); political
activities or events (including the potential for rapid and
unexpected changes in government, economic and political policies,
the imposition of additional duties, tariffs, taxes and other
charges or other barriers to trade, including as a result of
changes in diplomatic and trade relations or agreements with other
countries); 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 or 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 through
open market transactions, including through Rule 10b5-1 plans and
accelerated share repurchase or other structured repurchase
transaction, and/or privately negotiated transactions; the
Company’s receipt of any required approvals to the aforementioned
renovation of its New York City flagship store and expansion of its
retail operations to 6 East 57th Street, as well as the timing of
such approvals; changes in the cost and timing estimates associated
with the aforementioned renovation and expansion; delays caused by
third parties involved in the aforementioned renovation and
expansion; any casualty, damage or destruction to the Company’s
flagship store or 6 East 57th Street; and the Company’s ability to
successfully control costs and execute on, and achieve the expected
benefits from, the operational initiatives and strategic priorities
referenced above. 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 and priorities. 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 in “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, 2018 and in “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 and Form 10-Q 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:
Third Quarter 2018 vs. 2017 Year-to-date 2018
vs. 2017 GAAP
Reported
Translation
Effect
Constant-
Exchange-
Rate Basis
GAAPReported TranslationEffect Constant-Exchange-Rate
Basis
Net
Sales:
Worldwide 4 % (1 )% 5 % 10 % 1 % 9 % Americas 5 (1 ) 6 7 — 7
Asia-Pacific 4 (2 ) 6 19 1 18 Japan 2 (1 ) 3 10 2 8 Europe 3 (2 ) 5
6 3 3 Other (7 ) — (7 ) (17 ) — (17 )
Comparable
Sales:
Worldwide 2 % (1 )% 3 % 7 % 1 % 6 % Americas 5 — 5 7 — 7
Asia-Pacific 1 (3 ) 4 8 1 7 Japan 1 (1 ) 2 8 2 6 Europe (3 ) (3 ) —
— 4 (4 ) Other (21 ) — (21 ) (8 ) — (8 )
Beginning in the first quarter of 2018, the Company revised its
definition of comparable sales to include e-commerce and catalog
sales, in addition to sales transacted in Company-operated stores
open for more than 12 months. For reference purposes, the following
tables reconcile the comparable sales percentage increases
(decreases) from the GAAP to the non-GAAP basis versus the previous
year for the third quarter and year-to-date of 2017:
Third Quarter 2017 vs. 2016As Revised Third
Quarter 2017 vs. 2016As Previously Reported GAAPReported
TranslationEffect Constant-Exchange-Rate Basis GAAPReported
TranslationEffect Constant-Exchange-Rate Basis
Comparable
Sales:
Worldwide — % — % — % (1 )% (1 )% — % Americas 1 — 1 1 1 —
Asia-Pacific 3 1 2 2 — 2 Japan (8 ) (8 ) — (8 ) (8 ) — Europe (2 )
4 (6 ) (3 ) 5 (8 ) Other 7 — 7 7 — 7
Year-to-date 2017 vs. 2016As
Revised Year-to-date 2017 vs. 2016As Previously Reported
GAAPReported TranslationEffect Constant-Exchange-Rate
Basis GAAPReported TranslationEffect
Constant-Exchange-Rate Basis
Comparable
Sales:
Worldwide (1 )% — % (1 )% (2 )% (1 )% (1 )% Americas (1 ) — (1 ) (1
) — (1 ) Asia-Pacific (2 ) — (2 ) (2 ) — (2 ) Japan (2 ) (5 ) 3 (2
) (5 ) 3 Europe (2 ) (1 ) (1 ) (3 ) (1 ) (2 ) Other — — — — — —
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
October 31,
Nine Months EndedOctober 31,
2018 2017
2018
2017 Net sales
$ 1,012.4 $ 976.2
$
3,121.5 $ 2,835.4 Cost of sales
383.1
376.2
1,152.5 1,076.8 Gross profit
629.3 600.0
1,969.0 1,758.6 Selling, general
and administrative expenses
502.9 436.0
1,447.1 1,260.3 Earnings from operations
126.4 164.0
521.9 498.3 Interest and other
expenses, net
11.9 13.6
34.8
39.2 Earnings from operations before income taxes
114.5 150.4
487.1 459.1 Provision for income
taxes
19.6 50.2
105.2 150.9
Net earnings
$ 94.9 $ 100.2
$ 381.9 $ 308.2 Net earnings per share:
Basic
$ 0.78 $ 0.81
$
3.10 $ 2.47 Diluted
$ 0.77 $
0.80
$ 3.08 $ 2.46
Weighted-average number of common shares: Basic
122.3
124.4
123.3 124.5 Diluted
123.1 125.0
124.0
125.1
TIFFANY & CO. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, in millions)
October 31, 2018 January 31, 2018 October 31, 2017
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 655.4 $ 1,291.2 $ 1,009.4 Accounts
receivable, net
212.4 231.2 218.0 Inventories, net
2,473.4 2,253.5 2,327.4 Prepaid expenses and other current
assets
267.3 207.4 223.4 Total current
assets
3,608.5 3,983.3 3,778.2 Property, plant and
equipment, net
974.5 990.5 948.7 Other assets, net
517.7 494.3 587.1
$
5,100.7 $ 5,468.1 $ 5,314.0
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
68.9 $ 120.6 $ 193.2 Accounts payable and accrued
liabilities
443.9 437.4 388.3 Income taxes payable
21.5 89.4 39.2 Merchandise credits and deferred revenue
81.2 77.4 73.6 Total current
liabilities
615.5 724.8 694.3 Long-term debt
880.0 882.9 879.2 Pension/postretirement benefit obligations
284.9 287.4 314.1 Other long-term liabilities
265.8
284.3 216.6 Deferred gains on sale-leasebacks
32.1 40.5 40.7
Stockholders’ equity
3,022.4 3,248.2 3,169.1
$ 5,100.7 $ 5,468.1 $ 5,314.0
TIF-E
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181128005209/en/
Tiffany & Co.Mark L. Aaron,
212-230-5301mark.aaron@tiffany.com
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