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Tiffany Reports Full Year and Fourth Quarter 2015 Results; Management Comments on Sales and Earnings Outlook

NEW YORK--(BUSINESS WIRE)-- Tiffany & Co. (NYSE:TIF) reported its financial results for the 12 months ("full year") and three months ("fourth quarter") ended January 31, 2016. Throughout the year, results were pressured by the strong U.S. dollar, which had a negative effect on the translation of non-U.S. sales into dollars and on foreign tourist spending in the U.S., as well as, to varying degrees, the effects of macro-economic challenges and uncertainties on consumer spending. Management issued its projections for 2016 (fiscal year ending January 31, 2017) calling for minimal growth in net sales on a constant-exchange-rate basis, and net earnings ranging from unchanged to a mid-single-digit decline compared with $3.83 (excluding charges - see "Non-GAAP Measures") in 2015, and free cash flow of at least $400 million.

In the full year:

In the fourth quarter:

Frederic Cumenal, chief executive officer, said, "We faced various challenges during the year that negatively affected our financial results, especially related to the strong U.S. dollar. However, our management team continued to pursue initiatives to strengthen Tiffany's abilities to serve our clientele effectively and deliver extraordinary products and experiences. This included introducing a range of enticing new products spanning diamonds to silver jewelry, and enhancing our global store base. Worldwide sales growth of only 2% on a constant-exchange-rate basis, or down 3% as reported, along with the lack of earnings growth, did not meet the forecasts we had communicated at the start of the year; however, we were pleased with an increase in gross margin, strong free cash flow, and our ability to return cash to shareholders through another dividend increase and share repurchases."

Net sales highlights by region were as follows:

Other financial highlights:

Mr. Cumenal added, "We are assuming that sales and earnings growth in 2016 will continue to be pressured by various factors including a further strengthening of the dollar, along with volatile and uncertain economic and equity market conditions that will likely affect consumer spending. While it is challenging to forecast demand in such an environment and despite weak sales trends to-date in 2016 in most regions, our forecast assumes gradual improvements later in the year. As such, we will continue to focus on growing sales on a constant-exchange-rate basis across all regions, jewelry categories and price points, while managing expenses and assets to maintain high levels of profitability and cash flow."

Outlook:

Management currently forecasts that full year earnings per diluted share in 2016 will range from unchanged to a mid-single-digit decline compared with 2015's $3.83 per diluted share (excluding the loan impairment and staffing and occupancy charges - see "Non-GAAP Measures"). Based on sales trends in the current quarter-to-date and an assumption of gradual improvement over the course of the year, management expects that earnings per diluted share in the first quarter may decline by 15-20%, followed by a 5-10% decline in the second quarter and a resumption of growth in the second half. This annual forecast is based on the following assumptions, which are approximate and may or may not prove valid: (i) worldwide net sales on a constant-exchange-rate basis increasing by a low-single-digit percentage, but approximately equal to the prior year when translated into U.S. dollars; (ii) increasing worldwide gross retail square footage by 2%, net through 11 openings, 6 relocations and 9 closings; (iii) operating margin below the prior year's 19.7% (excluding the prior year's charges) due to an expected increase in gross margin but with SG&A expense growth (despite some benefit from lower pension costs) exceeding sales growth; (iv) interest and other expenses, net unchanged from 2015; (v) an effective income tax rate slightly lower than the prior year; (vi) net inventories unchanged from the prior year; (vii) capital expenditures of $260 million; and (viii) free cash flow of at least $400 million.

Mr. Cumenal further added, "We are focused on returning to stronger financial performance, at sustainable rates, which we believe is achievable as we execute on our strategic initiatives and as challenging external conditions abate. Therefore, our longer-term objective calls for reaching high-single-digit net earnings growth, driven by mid-single-digit worldwide net sales growth on a constant-exchange-rate basis, while also continuing to generate strong free cash flow."

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").

Upcoming Announcements and Events:

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, 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 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:

   
Fourth Quarter 2015 vs. 2014 Full Year 2015 vs. 2014
    Constant-     Constant-
GAAP Translation Exchange- GAAP Translation Exchange-
Reported Effect Rate Basis Reported Effect Rate Basis

Net Sales:

Worldwide (6 )% (4 )% (2 )% (3 )% (5 )% 2 %
Americas (8 ) (2 ) (6 ) (4 ) (2 ) (2 )
Asia-Pacific (8 ) (5 ) (3 ) (2 ) (5 ) 3
Japan 9 (3 ) 12 (2 ) (12 ) 10
Europe (6 ) (8 ) 2 (1 ) (13 ) 12
Other (6 )

-

(6 ) (13 )

-

(13 )
 

Comparable Store Sales:

Worldwide (9 )% (4 )% (5 )% (6 )% (6 )%

-

%
Americas (10 ) (2 ) (8 ) (6 ) (2 ) (4 )
Asia-Pacific (13 ) (5 ) (8 ) (5 ) (5 )

-

Japan 7 (3 ) 10 (7 ) (12 ) 5
Europe (12 ) (9 ) (3 ) (5 ) (14 ) 9
Other (21 )

-

(21 ) (15 )

-

(15 )
 

Comparable Store Sales

Comparable store sales include only sales transacted in Company-operated stores open for more than 12 months. Sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. Sales for a new store are not included in comparable store sales if that store resulted from a relocation from one department store to another or from a department store to a free-standing location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.

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 at January 31, 2016. The following tables reconcile certain GAAP amounts to non-GAAP amounts:

       
Specific cost-
Impairment reduction

(in millions, except per share amounts)

  GAAP  

chargea

 

initiativesb

  Non-GAAP
Quarter Ended January 31, 2016
Selling, general and administrative ("SG&A") expenses $ 503.9 (28.3 ) $ (8.8 ) $ 466.8
As a % of sales   41.5 %           38.5 %
Earnings from operations 260.9 28.3 8.8 298.0
As a % of sales   21.5 %           24.6 %
Net earnings   163.2     18.0     5.6     186.8  
Diluted earnings per share   1.28     0.14     0.04     1.46  
 
       
Specific cost-
Impairment reduction

(in millions, except per share amounts)

  GAAP  

chargesa

 

initiativesb

  Non-GAAP
Year Ended January 31, 2016
SG&A expenses $ 1,731.2 $ (37.9 ) $ (8.8 ) $ 1,684.5
As a % of sales   42.2 %           41.0 %
Earnings from operations 760.1 37.9 8.8 806.8
As a % of sales   18.5 %           19.7 %
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.
     
Debt

(in millions, except per share amounts)

  GAAP  

extinguishment c

  Non-GAAP
Year Ended January 31, 2015
Loss on extinguishment of debt   $ 93.8     $ (93.8 )   $

-

Provision for income taxes   253.4     32.8     286.2
Net earnings   484.2     60.9     545.1
Diluted earnings per share   3.73     0.47     4.20
 

c Expenses associated with the redemption of $400.0 million in aggregate principal amount of certain senior notes prior to their scheduled maturities.

Free Cash Flow

Internally, management monitors its cash flow on a non-GAAP basis. The ability to generate free cash flow demonstrates how much cash the Company has available for discretionary and non-discretionary items 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 more representative assessment of operating cash flows. The following table reconciles GAAP net cash provided by operating activities to non-GAAP free cash flow:

 
Years Ended January 31,
(in millions)   2016   2015
Net cash provided by operating activities $ 813.6   $ 615.1
Less: Capital expenditures (252.7 )   (247.4 )
Free cash inflow $ 560.9     $ 367.7  
 
   

TIFFANY & CO. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

(Unaudited, in millions, except per share amounts)

 
Three Months Ended
January 31, Years Ended January 31,
2016   2015 2016   2015
Net sales $ 1,213.6 $ 1,285.3 $ 4,104.9 $ 4,249.9
 
Cost of sales 448.8   503.7   1,613.6   1,712.7
 
Gross profit 764.8 781.6 2,491.3 2,537.2
 
Selling, general and administrative expenses 503.9   477.0   1,731.2   1,645.8
 
Earnings from operations 260.9 304.6 760.1 891.4
 
Interest and other expenses, net 12.1 12.3 50.2 60.1
 
Loss on extinguishment of debt

-

 

-

 

-

  93.8
 
Earnings from operations before income taxes 248.8 292.3 709.9 737.5
 
Provision for income taxes 85.6   96.1   246.0   253.3
 
Net earnings $ 163.2   $ 196.2   $ 463.9   $ 484.2
 
Net earnings per share:
 
Basic $ 1.28   $ 1.52   $ 3.61   $ 3.75
Diluted $ 1.28   $ 1.51   $ 3.59   $ 3.73
 
Weighted-average number of common shares:
 
Basic 127.4 129.3 128.6 129.2
Diluted 127.9 130.0 129.1 129.9
 
 

TIFFANY & CO. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited, in millions)

 
January 31, 2016 January 31, 2015

ASSETS

 
Current assets:
Cash and cash equivalents and short-term investments $ 886.6 $ 731.5
Accounts receivable, net 206.4 195.2
Inventories, net 2,225.0 2,362.1
Prepaid expenses and other current assets 190.4   220.0
 
Total current assets 3,508.4 3,508.8
 
Property, plant and equipment, net 935.8 899.5
Other assets, net 685.5   772.3
 
$ 5,129.7   $ 5,180.6
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
Current liabilities:
Short-term borrowings $ 221.6 $ 234.0
Current portion of long-term debt 84.2

-

Accounts payable and accrued liabilities 329.1 318.0
Income taxes payable 27.1 39.9
Merchandise credits and deferred revenue 67.9   66.1
 
Total current liabilities 729.9 658.0
 
Long-term debt 798.1 882.5
Pension/postretirement benefit obligations 428.1 524.2
Other long-term liabilities 189.0 200.7
Deferred gains on sale-leasebacks 55.1 64.5
Stockholders' equity 2,929.5   2,850.7
 
$ 5,129.7   $ 5,180.6
 

Tiffany & Co.
Mark L. Aaron, 212-230-5301
mark.aaron@tiffany.com

Source: Tiffany & Co.

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