Tiffany & Co. (NYSE:TIF) reported its financial results for
the three months (“first quarter”) ended April 30, 2016. Worldwide
net sales were lower than the prior year and reflected declines in
all regions except Japan, which management attributes to a
continuation of softness in spending by both local customers and
foreign tourists. Net earnings were also lower than the prior year
resulting from a decline in the operating margin, as improved gross
margin was more than offset by a lack of sales leverage on
operating expenses. However, net earnings were generally in line
with management’s previously announced expectation for the first
quarter, as set forth in the Company’s news release on March
18th.
In the first quarter:
- Worldwide net sales declined 7% to $891
million and comparable store sales declined 9%. 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 declined 7%, and
comparable store sales declined 9%.
- Net earnings of $87 million, or $0.69
per diluted share, included a tax benefit of $0.05 per diluted
share related to the settlement of a tax examination, and compared
with net earnings of $105 million, or $0.81 per diluted share, in
the prior year.
Frederic Cumenal, chief executive officer, said, “As expected,
this was a difficult quarter in terms of both sales and earnings
growth. We faced numerous challenges, including continued pressure
from foreign tourist spending in Europe, the U.S. and Asia,
particularly in Hong Kong. However, we are continuing to take
actions that are intended to strengthen sales growth with local
customers in the U.S. and around the world. From a strategic
perspective, we believe that our initiatives will enhance our
ability to provide our customers with extraordinary products and
experiences and ultimately contribute to improved financial
results. We remain focused on generating sustainable long-term
sales and earnings growth.”
Net sales highlights by region in the
first quarter were as follows:
- In the Americas, total sales of $403
million were 9% below the prior year and comparable store sales
declined 10%. On a constant-exchange-rate basis total sales and
comparable store sales declined 8% and 9%, respectively, with
management attributing the declines to varying degrees of softness
in spending by U.S. customers and foreign tourists.
- In the Asia-Pacific region, total sales
of $238 million were 8% below the prior year and comparable store
sales declined 15%. On a constant-exchange-rate basis total sales
and comparable store sales declined 5% and 12%, respectively; on
that basis, total sales growth in China and Korea was offset by a
continued significant decline in Hong Kong and more moderate
declines in other markets.
- In Japan, total sales of $131 million
were 8% above the prior year and comparable store sales increased
12%. On a constant-exchange-rate basis total sales and comparable
store sales rose 1% and 5%, respectively. Management attributed the
sales growth to higher spending by local customers.
- In Europe, total sales of $97 million
were 9% lower than the prior year and comparable store sales
declined 15%. On a constant-exchange-rate basis total sales and
comparable store sales declined 7% and 14%, respectively, due to
softness in most countries, led by France, that management
attributed largely to lower foreign tourist spending.
- Other sales declined 30% to $22
million, and comparable store sales declined 21%, reflecting lower
retail sales in the United Arab Emirates (“UAE”) and wholesale
sales in other markets.
- Tiffany opened two Company-operated
stores in the first quarter (in Europe) and closed one location (in
Japan). At April 30, 2016, the Company operated 308 stores (124 in
the Americas, 81 in Asia-Pacific, 55 in Japan, 43 in Europe, and
five in the UAE), compared with 298 stores a year ago (123 in the
Americas, 75 in Asia-Pacific, 56 in Japan, 39 in Europe, and five
in the UAE).
Other financial highlights:
- Gross margin (gross profit as a
percentage of net sales) increased to 61.2% in the quarter, from
59.1% a year ago. The increase was due to favorable product input
costs and the effect of a shift in sales mix towards higher-margin
products, as well as price increases, partly offset by the effect
of currency translation and a lack of sales leverage on fixed
costs.
- SG&A expenses increased 3% in the
first quarter due to higher labor, occupancy and depreciation
expenses, much of which was store-related.
- The effective tax rate was 29.0%
compared with 34.7% a year ago. The decline was due to a benefit
related to the conclusion of a tax examination.
- Cash and cash equivalents and
short-term investments totaled $790 million at April 30, 2016,
versus $715 million a year ago. Total short-term and long-term debt
as a percentage of stockholders’ equity was 37% at both April 30,
2016 and 2015.
- Net inventories at April 30, 2016 were
2% lower than the prior year.
- Capital expenditures of $46 million
compared with $37 million in the prior year.
- The Company spent $78 million in the
first quarter (at an average cost of $66 per share) to
repurchase shares of its Common Stock. At April 30, 2016, $416
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.
Outlook:
Management is now forecasting full year earnings per diluted
share in 2016 to decline by a mid-single-digit percentage from
2015’s adjusted earnings per diluted share (which excluded loan
impairment and certain staffing and occupancy charges - see
“Non-GAAP Measures”). Management also expects diluted EPS in the
second quarter to decline by a similar rate as occurred in the
first quarter. The forecast is based on the following full year
assumptions, which are approximate and may or may not prove valid:
(i) worldwide net sales declining by a low-single-digit percentage
from the prior year; (ii) worldwide gross retail square footage
increasing 2%, net through 11 openings, 6 relocations and 10
closings; (iii) operating margin below the prior year’s 19.7%
(excluding the prior year’s charges – see “Non-GAAP Measures”) due
to an expected increase in gross margin more than offset by
SG&A expense growth; (iv) interest and other expenses, net
unchanged from 2015; (v) an effective income tax rate slightly
lower than the prior year; (vi) a modest year-over-year
strengthening of the U.S. dollar; (vii) net inventories unchanged
from the prior year; (viii) capital expenditures of $260 million;
and (ix) free cash flow (net cash provided by operating activities
less capital expenditures) of at least $400 million.
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 second quarter results on Thursday
August 25th 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. For additional information,
please visit www.tiffany.com or call our shareholder information
line at 800-TIF-0110.
Forward-Looking Statements:
The statements in this document that refer to plans and
expectations for the current fiscal year and future periods are
forward-looking statements that involve a number of risks and
uncertainties. Words such as 'expects,' 'anticipates,' 'forecasts,'
'plans,' 'believes,' 'continues,' 'may,' 'will,' and variations of
such words and similar expressions are intended to identify such
forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements we make regarding the
Company's objectives, expectations and beliefs with respect to
store openings and closings, product introductions, sales, sales
growth, retail prices, gross margin, expenses, operating margin,
interest and other expenses, net, effective income tax rate, net
earnings and net earnings per share, inventories, capital
expenditures, cash flow, liquidity, currency translation and growth
opportunities. These forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond the
Company's control, which could cause the Company's actual results
to differ materially from those indicated in these forward-looking
statements. Such factors include, but are not limited to, risks
from global economic conditions, decreases in consumer confidence,
the Company's significant operations outside of the United States,
regional instability and conflict that could disrupt tourist travel
and local consumer spending, weakening foreign currencies, changes
in the Company's product or geographic sales mix and changes in
costs or reduced supply availability of diamonds and precious
metals. Please also see the Company's risk factors, as they may be
amended from time to time, set forth in the Company's filings with
the Securities and Exchange Commission, including the Company’s
most recently filed Annual Report on Form 10-K, for a discussion of
these and other factors that could cause actual results to differ
materially. 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”). 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. 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
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”). Management believes this
constant-exchange-rate basis provides a more representative
assessment of sales performance and provides better comparability
between reporting periods. The following table reconciles sales
percentage increases (decreases) from the GAAP to the non-GAAP
basis versus the previous year:
First Quarter 2016 vs. 2015
GAAPReported
TranslationEffect
Constant-Exchange-Rate Basis
Net
Sales:
Worldwide (7 )% — % (7 )% Americas (9 ) (1 ) (8 ) Asia-Pacific (8 )
(3 ) (5 ) Japan 8 7 1 Europe (9 ) (2 ) (7 ) Other (30 ) — (30 )
Comparable Store
Sales:
Worldwide (9 )% — % (9 )% Americas (10 ) (1 ) (9 ) Asia-Pacific (15
) (3 ) (12 ) Japan 12 7 5 Europe (15 ) (1 ) (14 ) Other (21 ) — (21
)
Net Earnings
The accompanying press release presents net earnings and
highlights expenses tied to certain items in the text. Management
believes excluding such items presents the Company's results on a
more comparable basis to the corresponding period in the prior
year, thereby providing investors with an additional perspective to
analyze the results of operations of the Company. The following
table reconciles certain GAAP amounts to non-GAAP amounts:
(in millions, except per share amounts)
GAAP
Impairmentcharges a
Specific cost-reductioninitiatives b
Non-GAAP
Year Ended January 31, 2016 SG&A
expenses $ 1,731.2 $ (37.9 ) $ (8.8 )
$ 1,684.5 Earnings from operations 760.1
37.9 8.8 806.8 Net earnings
463.9 24.3 5.6
493.8 Diluted earnings per share 3.59 0.19
0.05 3.83 a Expenses
associated with impairment charges related to a financing
arrangement with Koidu Limited. See "Item 8. Financial Statements
and Supplementary Data - Note J - Commitments and Contingencies" in
our Annual Report on Form 10-K, filed with the SEC on March 28,
2016, for further information.
b
Expenses associated with specific cost-reduction initiatives which
included severance related to staffing reductions and subleasing of
certain office space for which only a portion of the Company's
future rent obligations will be recovered. See "Item 8. Financial
Statements and Supplementary Data - Note J - Commitments and
Contingencies" in our Annual Report on Form 10-K, filed with the
SEC on March 28, 2016, for further information.
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS(Unaudited, in millions, except per share amounts)
Three Months EndedApril 30,
2016 2015 Net sales
$ 891.3 $ 962.4
Cost of sales
345.7 393.4 Gross profit
545.6 569.0 Selling, general and administrative
expenses
411.0 399.0 Earnings from operations
134.6 170.0 Interest and other expenses, net
11.5 9.3 Earnings from operations before
income taxes
123.1 160.7 Provision for income taxes
35.6 55.8 Net earnings
$ 87.5
$ 104.9 Net earnings per share: Basic
$
0.69 $ 0.81 Diluted
$ 0.69 $
0.81 Weighted-average number of common shares: Basic
126.1 129.2 Diluted
126.5 129.8
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Unaudited, in millions)
April 30,2016
January 31,2016
April 30,2015
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 789.9 $ 886.6 $ 715.4 Accounts
receivable, net
221.5 206.4 192.5 Inventories, net
2,320.1 2,225.0 2,363.0 Prepaid expenses and other current
assets
190.7 190.4 207.6 Total current
assets
3,522.2 3,508.4 3,478.5 Property, plant and
equipment, net
946.0 935.8 897.0 Other assets, net
680.0 677.4 765.9
$
5,148.2 $ 5,121.6 $ 5,141.4
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
220.1 $ 221.6 $ 197.1 Current portion of long-term debt
92.5 84.2 — Accounts payable and accrued liabilities
300.4 329.1 271.2 Income taxes payable
36.6 27.1 44.6
Merchandise credits and deferred revenue
68.2 67.9
72.2 Total current liabilities
717.8 729.9
585.1 Long-term debt
790.2 790.0 873.6
Pension/postretirement benefit obligations
436.4 428.1 532.2
Other long-term liabilities
188.1 189.0 201.4 Deferred gains
on sale-leasebacks
56.4 55.1 62.8 Stockholders’ equity
2,959.3 2,929.5 2,886.3
$
5,148.2 $ 5,121.6 $ 5,141.4
TIF – E
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version on businesswire.com: http://www.businesswire.com/news/home/20160525005317/en/
Tiffany & Co.Mark L. Aaron,
212-230-5301mark.aaron@tiffany.com
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