Tiffany & Co. (NYSE:TIF) reported that worldwide net sales
increased 1% in the three months (“third quarter”) ended October
31, 2016, reflecting mixed results across geographic regions and
product categories. Net earnings increased 5% in the third quarter
and earnings per diluted share rose 9%.
In the third quarter:
- Worldwide net sales rose 1% to $949
million and comparable store sales declined 2%. A modest increase
in fashion jewelry sales was offset by softness in other product
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 were
unchanged from the prior year and comparable store sales declined
3%.
- Net earnings increased 5% to $95
million, or $0.76 per diluted share, from $91 million, or $0.70 per
diluted share, in the prior year. The earnings growth reflects an
improvement in gross margin and, to a lesser extent, lower interest
and other expenses, partly offset by a lack of sales leverage on
selling, general and administrative expenses.
In the year-to-date (nine months ended
October 31):
- Worldwide net sales of $2.8 billion
were 4% below the prior year, and comparable store sales declined
6% due to varying rates of decline in all regions except Japan. On
a constant-exchange-rate basis, worldwide net sales and comparable
store sales were 4% and 7%, respectively, below the prior
year.
- Net earnings were $288 million, or
$2.29 per diluted share, compared with $301 million, or $2.32 per
diluted share, in the prior year. Earnings in the current
year-to-date included a tax benefit of $0.05 per diluted share in
the first quarter related to the settlement of a tax examination.
Earnings in the first nine months of the prior year included an
impairment charge of $0.05 per diluted share in the second quarter
in respect of a loan to a diamond mining company (see “Non-GAAP
Measures”).
Frederic Cumenal, chief executive officer, said, “We are
encouraged by some early signs of improvement in sales trends, but
we clearly need more positive data over time before this can be
considered an inflection point. In this recent quarter, we saw a
smaller sales decline in the U.S. from earlier this year, while
Asia-Pacific results reflected strong growth in mainland China and
a relatively smaller decline in Hong Kong. Our business in Japan
performed well which we attribute to spending by domestic
consumers, but we believe the strengthening of the yen has
negatively impacted purchases by Chinese consumers. We also saw
relative strength in UK sales, but a continuation of softness on
the European continent.”
He added, “This year, we’ve added exciting new designs across
our jewelry and watch categories and are pleased with initial
customer response. As the global environment continues to reflect
economic and other challenges that we believe are continuing to
affect customer demand, it is more important than ever that we
remain focused on strategies to deliver extraordinary products and
experiences to our customers. Over the long-term, our objective is
to enhance profitability and productivity through sales growth and
prudent expense and inventory management, while further
strengthening our competitive position among global luxury
brands.”
Net sales by region were as
follows:
- In the Americas, total sales of $417
million in the third quarter were 2% below the prior year, and
sales of $1.25 billion in the year-to-date were 7% below the prior
year; comparable store sales declined 2% and 7% in the respective
periods. On a constant-exchange-rate basis, total sales declined 2%
in the third quarter and 6% in the year-to-date; comparable store
sales declined 2% and 7%, respectively. Management attributed the
sales decline in the quarter to lower spending by U.S. customers
which was largely offset by higher spending attributed to foreign
tourists primarily from Japan.
- In the Asia-Pacific region, total sales
rose 4% to $247 million in the third quarter and declined 4% to
$715 million in the year-to-date; comparable store sales declined
7% and 11%, respectively. On a constant-exchange-rate basis, total
sales rose 3% in the third quarter and declined 2% in the
year-to-date; comparable store sales declined 7% and 10%,
respectively. In the quarter, management noted double-digit sales
growth in China, solid retail and wholesale sales growth in Korea
and a decelerating rate of sales decline in Hong Kong, as well as
continued sales declines in Australia and Singapore.
- In Japan, sales benefited from the yen
strengthening versus the U.S. dollar, with total sales increasing
13% to $150 million in the third quarter and 10% to $419 million in
the year-to-date, but were negatively affected by lower wholesale
sales; comparable store sales rose 20% and 15%, respectively.
However, on a constant-exchange-rate basis, total sales declined 4%
in the third quarter and 3% in the year-to-date, reflecting lower
wholesale sales, while comparable store sales rose 2% and 1%,
respectively. Management noted higher spending attributed to local
customers in the quarter, along with lower spending attributed to
Chinese tourists in both periods.
- In Europe, total sales declined 10% to
$104 million in the third quarter and 10% to $312 million in the
year-to-date; comparable store sales declined 14% and 15%,
respectively. On a constant-exchange-rate basis, total sales
declined 2% in the third quarter and 6% in the year-to-date;
comparable store sales declined 7% and 11%, respectively.
Management attributed soft demand across continental Europe,
especially in France, to both local customers and foreign tourists,
while strong local-currency sales growth in the United Kingdom was
primarily attributable to higher foreign tourist spending.
- Other sales rose 18% to $31 million in
the third quarter due to increased wholesale sales of diamonds, and
declined 7% to $71 million in the year-to-date as an increase in
wholesale sales of diamonds was offset by lower retail sales in the
United Arab Emirates (“UAE”). Comparable store sales declined 12%
and 19% in the respective periods.
- Tiffany opened four Company-operated
stores in the third quarter and closed two existing locations, all
in the Asia-Pacific region. At October 31, 2016, the Company
operated 313 stores (125 in the Americas, 85 in Asia-Pacific, 55 in
Japan, 43 in Europe, and five in the UAE), versus 305 stores a year
ago (125 in the Americas, 79 in Asia-Pacific, 56 in Japan, 40 in
Europe, and five in the UAE).
Other highlights:
- Gross margins (gross profit as a
percentage of net sales) of 61.0% in the third quarter and 61.4% in
the year-to-date were higher than 60.2% and 59.7%, respectively, in
the prior year. The increases were due to lower product input
costs, changes in product sales mix and price increases taken in
the past year, partly offset by the impact of increased wholesale
sales of diamonds.
- SG&A expenses increased 4% in the
third quarter primarily due to increases in store occupancy and
depreciation expenses, marketing expenses, and labor and incentive
compensation costs. SG&A expenses rose 1% in the year-to-date,
primarily reflecting increased store occupancy and depreciation
expenses, lower benefit costs and the effect of a loan impairment
charge recorded last year.
- The effective tax rates were 34.6% in
the third quarter and 33.0% in the year-to-date, versus 35.5% and
34.8%, respectively, in the prior-year. The decline from last year
in the year-to-date effective tax rate reflected the favorable
impact of the conclusion of a tax examination in this year’s first
quarter.
- Cash and cash equivalents and
short-term investments were $787 million at October 31, 2016,
versus $725 million at October 31, 2015. Total debt (short-term and
long-term) as a percentage of stockholders’ equity was 38% at
October 31, 2016 and 37% at October 31, 2015.
- Net inventories at October 31, 2016
were 2% lower than at October 31, 2015.
- Capital expenditures were $157 million
and $159 million in the nine months ended October 31, 2016 and
2015.
- The Company repurchased approximately
455,000 shares of its Common Stock in the third quarter at an
average cost of approximately $68 per share, and repurchased
approximately 2.8 million shares at an average cost of
approximately $65 per share in the year-to-date. At October 31,
2016, approximately $313 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.
- With respect to the impact of recent
election-related activity near the Company’s New York Flagship
store, management has noted some adverse effect on traffic in that
store and a continuation of sales softness relative to prior year
and to the Company’s other U.S. stores this year. That store
represented less than 10% of worldwide net sales for the three and
nine-month periods ended October 31, 2016, as well as for each
quarter in fiscal 2015. The Company cannot provide any
assurance that sales in that store will not be negatively affected
by this activity in the fourth quarter or in any future
period.
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 (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 3%, net through 11 store openings,
6 relocations and 6 closings; (ii) operating margin below the prior
year (excluding the prior year’s charges – see “Non-GAAP Measures”)
due to an anticipated increase in gross margin more than offset by
SG&A expense growth; (iii) interest and other expenses, net
unchanged from 2015; (iv) an effective income tax rate lower than
the prior year; (v) the U.S. dollar unchanged at current spot rates
versus other foreign currencies for the balance of the year; and
(vi) weighted average diluted shares outstanding 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 - see “Non-GAAP Measures”) of at least $400
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 Announcements:
The Company expects to report its sales results for the two
month holiday period ending December 31, 2016 on Tuesday January
17th 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 third 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; sales
trends; store traffic; 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; litigation outcomes and
recovery related thereto; the collectability of amounts due under
financing arrangements with diamond mining and exploration
companies; and certain ongoing or planned product, marketing,
retail, manufacturing, 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; shifting tourism trends; regional instability, violence
(including terrorist activities), election-related or other
political activities or events, and 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; 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; 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, 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, 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:
Third Quarter 2016 vs. 2015
Year-to-date 2016 vs. 2015 GAAP
Reported
Translation
Effect
Constant-
Exchange-
Rate Basis
GAAP
Reported
Translation
Effect
Constant-
Exchange-
Rate Basis
Net
Sales:
Worldwide 1 % 1 % — % (4 )% — % (4 )% Americas (2 ) — (2 ) (7 ) (1
)% (6 ) Asia-Pacific 4 1 3 (4 ) (2 )% (2 ) Japan 13 17 (4 ) 10 13 %
(3 ) Europe (10 ) (8 ) (2 ) (10 ) (4 )% (6 ) Other 18 — 18 (7 ) — %
(7 )
Comparable Store
Sales:
Worldwide (2 )% 1 % (3 )% (6 )% 1 % (7 )% Americas (2 ) — (2 ) (7 )
— % (7 ) Asia-Pacific (7 ) — (7 ) (11 ) (1 )% (10 ) Japan 20 18 2
15 14 % 1 Europe (14 ) (7 ) (7 ) (15 ) (4 )% (11 ) Other (12 ) —
(12 ) (19 ) — % (19 )
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
Nine Months Ended October 31, 2015 SG&A
expenses $ 1,227.3 $ (9.6 ) $ 1,217.7 As a % of net sales
42.4
% 42.1 % Earnings from operations
499.2
9.6 508.8 As a % of net sales
17.3
% 17.6 % Provision for income taxes c
160.4
3.3 163.7 Net earnings
300.7
6.3 307.0 Diluted earnings per
share
2.32
0.05 2.37 (in millions,
except per share amounts) GAAP
Impairment
charges a
Specific cost-
reduction
initiatives 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.
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 Ended
October 31,
2016 2015
2016 2015 Net sales
$
949.3 $ 938.2
$ 2,772.2 $ 2,891.2 Cost
of sales
369.8 373.7
1,070.1 1,164.7
Gross profit
579.5 564.5
1,702.1 1,726.5
Selling, general and administrative expenses
424.3
408.1
1,237.4 1,227.3 Earnings from
operations
155.2 156.4
464.7 499.2 Interest
and other expenses, net
9.7 15.2
34.5
38.1 Earnings from operations before income taxes
145.5
141.2
430.2 461.1 Provision for income taxes
50.4 50.2
141.9 160.4 Net
earnings
$ 95.1 $ 91.0
$ 288.3
$ 300.7 Net earnings per share: Basic
$
0.76 $ 0.71
$ 2.30 $ 2.33
Diluted
$ 0.76 $ 0.70
$ 2.29
$ 2.32 Weighted-average number of common shares:
Basic
124.6 128.6
125.3 129.0 Diluted
124.9 129.1
125.7 129.5
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)
October 31,
2016
January 31,
2016
October 31,
2015
ASSETS
Current assets: Cash and cash equivalents and short-term
investments
$ 786.7 $ 886.6 $ 725.1 Accounts
receivable, net
214.0 206.4 206.5 Inventories, net
2,303.1 2,225.0 2,347.0 Prepaid expenses and other current
assets
205.4 190.4 204.2 Total current
assets
3,509.2 3,508.4 3,482.8 Property, plant and
equipment, net
951.8 935.8 912.2 Other assets, net
678.1 677.4 762.5
$
5,139.1 $ 5,121.6 $ 5,157.5
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities: Short-term borrowings
$
219.5 $ 221.6 $ 198.3 Current portion of long-term debt
— 84.2 82.6 Accounts payable and accrued liabilities
313.1 329.1 323.4 Income taxes payable
32.6 27.1 30.6
Merchandise credits and deferred revenue
70.5 67.9
73.4 Total current liabilities
635.7 729.9
708.3 Long-term debt
885.7 790.0 789.8
Pension/postretirement benefit obligations
448.0 428.1 545.8
Other long-term liabilities
194.6 189.0 184.7 Deferred gains
on sale-leasebacks
50.0 55.1 57.9 Stockholders’ equity
2,925.1 2,929.5 2,871.0
$
5,139.1 $ 5,121.6 $ 5,157.5
TIF - E
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version on businesswire.com: http://www.businesswire.com/news/home/20161129005455/en/
Tiffany & Co.Mark L. Aaron,
212-230-5301mark.aaron@tiffany.com
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