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Tiffany Reports Second Quarter Results: Full Year Earnings Outlook is Maintained

NEW YORK--(BUSINESS WIRE)-- 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:

In the first half:

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:

Other financial highlights:

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

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

GAAP
Reported

 

Translation
Effect

 

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    

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.
 
 

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in millions, except per share amounts)

 
   

Three Months Ended
July 31,

 

Six Months Ended
July 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 SUBSIDIARIES
CONDENSED 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

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

Source: Tiffany & Co.

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