Tiffany & Co. (NYSE:TIF) reported its financial results for
the three months (“second quarter”) and six months (“first half”)
ended July 31, 2016. Worldwide net sales were below the prior year
in both periods, which management attributed to declines in sales
to both local customers and foreign tourists in most regions. Net
earnings as reported in the second quarter were above the prior
year (but declined when compared with adjusted net earnings in the
equivalent prior-year period - see “Non-GAAP Measures”) and
declined in the first half. In both periods, earnings benefited
from higher gross margins, but there was a lack of sales leverage
on operating expenses.
In the second quarter:
- Worldwide net sales declined 6% to $932
million and comparable store sales declined 8%. 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 store
sales declined 6% and 9%, respectively.
- Net earnings rose 1% to $106 million,
or $0.84 per diluted share, from $105 million, or $0.81, in the
prior year. Net earnings declined 5% from the prior-year period’s
$111 million, or $0.86 per diluted share, which excludes a specific
charge in that period (see “Non-GAAP Measures”).
In the first half:
- Worldwide net sales of $1.8 billion
were 7% below the prior year and comparable store sales declined
9%. On a constant-exchange-rate basis, worldwide net sales and
comparable store sales declined 6% and 9%, respectively.
- Net earnings of $193 million, or $1.53
per diluted share, included a tax benefit of $0.05 per diluted
share in the first quarter related to the settlement of a tax
examination. This compared with the prior year’s $210 million, or
$1.62 per diluted share, as reported, and $216 million, or $1.67
per diluted share, when adjusted for the charge referenced above
(see “Non-GAAP Measures”).
Frederic Cumenal, chief executive officer, said, “The global
environment continues to reflect well known challenges that we
believe have had broad effects on spending by local customers, as
well as foreign tourists, especially from China. We are managing
expenses efficiently, but also maintaining our marketing spending
as a percentage of sales and continuing to invest in key strategic
initiatives and opportunities to further strengthen Tiffany’s
competitive position among global luxury brands. By delivering
extraordinary products and experiences to our customers around the
world, we remain focused on growing sales, operating margins and
earnings, and creating greater value for stockholders.”
Net sales by region were as
follows:
- In the Americas, total sales of $434
million in the second quarter and $837 million in the first half
were both 9% below last year, with declines of 9% and 10%,
respectively, in comparable store sales. On a
constant-exchange-rate basis, total sales and comparable store
sales declined 8% and 9%, respectively, in both the second quarter
and first half. Management attributed the declines to lower
spending by U.S. customers as well as by Chinese and other foreign
tourists.
- In the Asia-Pacific region, total sales
of $230 million in the second quarter and $469 million in the first
half were 6% and 7%, respectively, lower than the prior year, and
comparable store sales declined 12% and 13%, respectively. On a
constant-exchange-rate basis, total sales and comparable store
sales declined 3% and 9%, respectively, in the second quarter and
4% and 11%, respectively, in the first half. Sales growth in China
and Korea was offset by a continuation of significant declines in
Hong Kong and more moderate declines in most other markets.
- In Japan, total sales increased 10% to
$138 million in the second quarter and rose 9% to $269 million in
the first half due to comparable store sales growth of 13% and 12%,
respectively. However, on a constant-exchange-rate basis, total
sales and comparable store sales declined 5% and 3%, respectively,
in the second quarter and declined 2% and rose 1%, respectively, in
the first half. Management noted lower spending by Chinese tourists
in both periods.
- In Europe, total sales declined 12% to
$111 million in the second quarter and 11% to $208 million in the
first half, due to respective declines of 17% and 16% in comparable
store sales. On a constant-exchange-rate basis, total sales and
comparable store sales declined 8% and 13%, respectively, in the
second quarter and 7% and 13%, respectively, in the first half.
Lower sales in continental Europe were attributed by management to
weak demand by foreign tourists and local customers, in contrast to
better performance in the United Kingdom.
- Other sales declined 3% to $18 million
in the second quarter and 20% to $40 million in the first half,
reflecting comparable store sales declines of 22% and 21%,
respectively. Management noted lower retail sales in the United
Arab Emirates (“UAE”) and an increase in wholesale sales of
diamonds.
- Tiffany opened four Company-operated
stores in the second quarter and closed one existing location. At
July 31, 2016, the Company operated 311 stores (125 in the
Americas, 83 in Asia-Pacific, 55 in Japan, 43 in Europe, and five
in the UAE), compared with 304 stores a year ago (124 in the
Americas, 79 in Asia-Pacific, 56 in Japan, 40 in Europe, and five
in the UAE).
Other financial highlights:
- Gross margin (gross profit as a
percentage of net sales) increased to 61.9% in the second quarter
and 61.6% in the first half, from 59.9% and 59.5% in the respective
prior-year periods. The increases were due to lower product input
costs, changes in product sales mix and price increases taken in
the past year.
- SG&A expenses declined 4% in the
second quarter and 1% in the first half, reflecting lower variable
labor-related costs, lower sales-related variable costs, lower
marketing expenses and higher store-related costs. Excluding the
effect of a specific charge in the prior year period, SG&A
expenses declined 2% in the second quarter and increased less than
one percent in the first half.
- The effective tax rates were 34.5% in
the second quarter and 32.1% in the first half, compared with 34.2%
and 34.4%, respectively, in the comparable prior-year periods. The
decline in the first half rate was due to a benefit related to the
conclusion of a tax examination.
- Net inventories at July 31, 2016 were
1% lower than at July 31, 2015.
- Capital expenditures of $101 million in
the first half were slightly higher than $98 million in last year’s
first half.
- The Company maintained an active pace
of share repurchases in the second quarter, buying approximately
1.1 million shares of its Common Stock at an average cost of
approximately $63 per share; in the first half the Company bought
approximately 2.3 million shares at an average cost of
approximately $65 per share. At July 31, 2016, $344 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.
- Cash and cash equivalents and
short-term investments totaled $720 million at July 31, 2016,
versus $771 million at July 31, 2015. Total short-term and
long-term debt as a percentage of stockholders’ equity was 37% at
both July 31, 2016 and 2015.
Outlook:
For the full 2016 fiscal year, management is maintaining its
outlook to expect: (i) worldwide net sales declining by a low
single-digit percentage from the prior year and (ii) earnings per
diluted share declining by a mid-single-digit percentage from
2015’s adjusted earnings of $3.83 per diluted share (which excluded
loan impairment and certain staffing and occupancy charges - 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 11
openings, 6 relocations and 9 closings; (ii) operating margin below
the prior year’s 19.7% (excluding the prior year’s charges – see
“Non-GAAP Measures”) due to an anticipated increase in gross margin
(although at a considerably lesser rate in the second half than in
the first half of the year) more than offset by SG&A expense
growth; (iii) interest and other expenses, net unchanged from 2015;
(iv) an effective income tax rate slightly lower than the prior
year; (v) the U.S. dollar unchanged from current spot rates for the
balance of the year; and (vi) weighted average diluted shares
outstanding modestly lower than in fiscal 2015.
Management also expects for the full 2016 fiscal year: (i) net
cash provided by operating activities of at least $660 million and
(ii) free cash flow (net cash provided by operating activities less
capital expenditures) of at least $400 million. These expectations
are also based on the Company’s plans and assumptions, including:
(i) net inventories unchanged from the prior year, (ii) capital
expenditures of $260 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 third quarter results on Tuesday
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. For additional information,
please visit www.tiffany.com or call our shareholder information
line at 800-TIF-0110.
Forward-Looking Statements:
The historical trends and results reported in this document and
on our second 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
“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; 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; growth
opportunities; the collectability of amounts due under financing
arrangements with diamond mining and exploration companies; and
certain ongoing or planned product, marketing, retail,
manufacturing 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; shifting tourism trends; regional instability, violence
(including terrorist activities) and weather conditions that may
affect local and tourist consumer spending; changes in consumer
confidence, preferences and shopping patterns, as well 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;
changes in our competitive landscape; disruptions impacting the
Company’s business and operations; gains or losses in the trading
value of the Company’s stock, which may impact the amount of stock
repurchased; and our ability to successfully control costs and
execute on, and achieve the expected benefits from, the operational
and strategic initiatives 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,
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, 2016 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:
Second Quarter 2016 vs. 2015 First Half
2016 vs. 2015
GAAPReported
TranslationEffect
Constant-Exchange-Rate Basis
GAAPReported
TranslationEffect
Constant-Exchange-Rate Basis
Net
Sales:
Worldwide (6 )% — % (6 )% (7 )% (1 )% (6 )% Americas (9 ) (1 ) (8 )
(9 ) (1 )% (8 ) Asia-Pacific (6 ) (3 ) (3 ) (7 ) (3 )% (4 ) Japan
10 15 (5 ) 9 11 % (2 ) Europe (12 ) (4 ) (8 ) (11 ) (4 )% (7 )
Other (3 ) — (3 ) (20 ) — % (20 )
Comparable Store
Sales:
Worldwide (8 )% 1 % (9 )% (9 )% — % (9 )% Americas (9 ) — (9 ) (10
) (1 )% (9 ) Asia-Pacific (12 ) (3 ) (9 ) (13 ) (2 )% (11 ) Japan
13 16 (3 ) 12 11 % 1 Europe (17 ) (4 ) (13 ) (16 ) (3 )% (13 )
Other (22 ) — (22 ) (21 ) — % (21 )
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 charge a
Non-GAAP
Three months ended July 31, 2015
Selling, general and
administrative expenses $ 420.2 $ (9.6 ) $ 410.6 As a % of net
sales 42.4 %
41.5 % Earnings from operations
172.8
9.6 182.4 As a %
of net sales 17.4 %
18.4 % Provision for
income taxes c 54.3
3.3 57.6
Net earnings 104.9
6.3 111.2
Diluted earnings per share
0.81 0.05
0.86
Six months
ended July 31, 2015 Selling, general and administrative
expenses $ 819.2 $ (9.6 ) $ 809.6 As a % of net sales
41.9 %
41.5 % Earnings from operations
342.8 9.6
352.4 As a % of net sales
17.6 %
18 % Provision for income taxes c
110.2 3.3
113.5 Net earnings
209.7 6.3
216 Diluted earnings per share
1.62
0.05 1.67 (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 As a % of net sales
42.2 %
41.0 % Earnings from operations
760.1 37.9
8.8 806.8 As a %
of net sales 18.5 %
19.7 % Provision for
income taxes c 246.0
13.6 3.2
262.8 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. 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. c The income tax effect 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 item.
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS(Unaudited, in millions, except per share amounts)
Three Months EndedJuly 31,
Six Months EndedJuly 31,
2016 2015
2016 2015 Net sales
$
931.6 $ 990.5
$ 1,822.9 $ 1,953.0
Cost of sales
354.5 397.5
700.3
791.0 Gross profit
577.1 593.0
1,122.6 1,162.0
Selling, general and administrative expenses
402.2
420.2
813.1 819.2 Earnings from
operations
174.9 172.8
309.5 342.8 Interest
and other expenses, net
13.4 13.6
24.8
22.9 Earnings from operations before income taxes
161.5 159.2
284.7 319.9 Provision for income
taxes
55.8 54.3
91.5 110.2
Net earnings
$ 105.7 $ 104.9
$ 193.2 $ 209.7 Net earnings per share:
Basic
$ 0.84 $ 0.81
$
1.54 $ 1.62 Diluted
$ 0.84 $
0.81
$ 1.53 $ 1.62
Weighted-average number of common shares: Basic
125.3
129.0
125.7 129.1 Diluted
125.6 129.6
126.1
129.7
TIFFANY & CO. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Unaudited, in millions)
July 31,2016
January 31,2016
July 31,2015
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 720.1 $ 886.6 $ 771.4 Accounts
receivable, net
216.4 206.4 180.3 Inventories, net
2,324.8 2,225.0 2,357.7 Prepaid expenses and other current
assets
215.4 190.4 202.9 Total current
assets
3,476.7 3,508.4 3,512.3 Property, plant and
equipment, net
944.8 935.8 898.4 Other assets, net
681.4 677.4 761.3
$
5,102.9 $ 5,121.6 $ 5,172.0
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
207.1 $ 221.6 $ 196.8 Current portion of long-term debt
94.8 84.2 — Accounts payable and accrued liabilities
300.7 329.1 310.2 Income taxes payable
30.5 27.1 38.3
Merchandise credits and deferred revenue
64.5 67.9
73.9 Total current liabilities
697.6 729.9
619.2 Long-term debt
790.5 790.0 870.1
Pension/postretirement benefit obligations
442.1 428.1 538.9
Other long-term liabilities
190.8 189.0 189.6 Deferred gains
on sale-leasebacks
53.2 55.1 59.5 Stockholders’ equity
2,928.7 2,929.5 2,894.7
$
5,102.9 $ 5,121.6 $ 5,172.0
TIF - E
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version on businesswire.com: http://www.businesswire.com/news/home/20160825005289/en/
Tiffany & Co.Mark L. Aaron,
212-230-5301mark.aaron@tiffany.com
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