Tiffany Reports First Quarter Results
In the first quarter:
Worldwide net sales rose 1% to
$900 milliondue to growth in Asia-Pacificand 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 $0.74per diluted share, compared with $87 million, or $0.69per diluted share, a year ago.
Net sales by region in the first quarter were as follows:
Americas, total sales of $392 millionwere 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.
Asia-Pacific region, total sales of $257 millionwere 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 Chinaand varying degrees of softness in other markets. On a constant-exchange-rate basis, total sales rose 9% and comparable store sales declined 2%.
Japan, total sales of $128 millionwere 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.
Europe, total sales declined 3% to $94 millionand 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 Kingdomon a constant-exchange-rate basis to spending by local customers and foreign tourists.
Other sales in total rose 32% to
$28 milliondue 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).
- 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
$0.02per 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 $0.05per diluted share related to the conclusion of a tax examination.
Net inventories at
April 30, 2017were 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
$93per share and a total cost of $11.5 million. At April 30, 2017, $299 millionremained available for repurchases under a program that authorizes the repurchase of up to $500 millionof 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 millionat April 30, 2017, up from $790 milliona 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
Management also expects for fiscal 2017: (i) net cash provided by
operating activities of approximately
Today's Conference Call:
The Company will conduct a conference call today at
Next Scheduled Announcement:
The Company expects to report its financial results for the three and
six months ending
Tiffany is the internationally-renowned jeweler founded in
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
# # #
The Company reports information in accordance with
The Company's reported net sales reflect either a translation-related
benefit from strengthening foreign currencies or a detriment from a
|First Quarter 2017 vs. 2016|
|Comparable Store Sales:|
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|
As a % of sales
|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|
|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 millionof net pre-tax expense ( $16.0 millionnet after tax expense, or $0.13per 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 millionof net pre-tax expense ( $8.0 millionnet after tax expense, or $0.06per diluted share) associated with impairment charges related to financing arrangements with diamond mining and exploration companies.
b The income tax effect resulting from the adjustments has been calculated as both current and deferred tax benefit (expense), based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying adjustment.
Free Cash Flow
Internally, management monitors its cash flow on a non-GAAP basis. Free cash flow is calculated by deducting capital expenditures from net cash provided by operating activities. The ability to generate free cash flow demonstrates how much cash the Company has available for discretionary and non-discretionary purposes after deduction of capital expenditures. The Company's operations require regular capital expenditures for the opening, renovation and expansion of stores and distribution and manufacturing facilities as well as ongoing investments in information technology. Management believes this provides a useful supplemental basis for assessing the Company's operating cash flows.
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in millions, except per share amounts)
Three Months Ended
|Cost of sales||342.0||345.7|
|Selling, general and administrative expenses||412.0||411.0|
|Earnings from operations||145.6||134.6|
|Interest and other expenses, net||9.5||11.5|
|Earnings from operations before income taxes||136.1||123.1|
|Provision for income taxes||43.2||35.6|
|Net earnings per share:|
|Weighted-average number of common shares:|
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)
|Cash and cash equivalents and short-term investments||$||960.0||$||985.8||$||789.9|
|Accounts receivable, net||233.1||226.8||221.5|
|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|
LIABILITIES AND STOCKHOLDERS' EQUITY
|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|
|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|
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