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Tiffany Reports Second Quarter Results

NEW YORK--(BUSINESS WIRE)-- Tiffany & Co. (NYSE:TIF) today reported its financial results for the three months ("second quarter") and six months ("first half") ended July 31, 2017. In both periods, modest net sales increases and improved operating margins contributed to growth in diluted earnings per share. Management maintained its sales and earnings guidance for the full year ending January 31, 2018 ("fiscal 2017"), and provided guidance for the second half of the year.

In the second quarter:

In the first half:

Michael J. Kowalski, Chairman of the Board and Interim Chief Executive Officer, said, "While net earnings rose in the first half, we remain determined to drive comparable store sales growth and stronger, sustainable earnings growth through a continued focus on product design innovation in jewelry and luxury accessories, further optimization of our store base, more impactful marketing communications and highly effective customer engagement both in-store and online. We were delighted to recently announce the appointment of a new Chief Executive Officer, Alessandro Bogliolo, an accomplished jewelry and luxury retail executive who will soon join Tiffany. My fellow directors and I believe that, under his leadership, the management team can realize the potential of our extraordinary global brand."

Net sales by region were as follows:

Other highlights:

Fiscal 2017 Outlook:

Management's outlook for fiscal 2017 calls for: (i) worldwide net sales increasing over the prior year by a low-single-digit percentage as reported and on a constant-exchange-rate basis, (ii) net earnings per diluted share increasing by a high-single-digit percentage over 2016's earnings per diluted share of $3.55 and by a mid-single-digit-percentage over 2016's earnings per diluted share (excluding charges) of $3.75 (see "Non-GAAP Measures") and (iii) earnings per diluted share in the second half of fiscal 2017 increasing over the prior year's second half, with the growth occurring in the fourth quarter. These expectations are approximations and are based on the Company's plans and assumptions for the full year, including: (i) worldwide gross retail square footage increasing 2%, net through 10 store openings, seven relocations and seven closings; (ii) operating margin in line with the prior year due to an expected increase in gross margin offset by SG&A expense growth higher than sales growth; (iii) interest and other expenses, net of $35-$40 million; (iv) an effective income tax rate of approximately 33%; (v) no meaningful effect in fiscal 2017 from the U.S. dollar versus foreign currencies on a year-over-year basis; and (vi) minimal benefit to net earnings per diluted share from share repurchases.

Management also expects for fiscal 2017: (i) net cash provided by operating activities of approximately $700 million and (ii) free cash flow (see "Non-GAAP Measures") of approximately $450 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 Announcement:

The Company expects to report its financial results for the three and nine months ending October 31, 2017 on Wednesday 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. Please visit www.tiffany.com for additional information.

Forward-Looking Statements:

The historical trends and results reported in this document and on our second quarter earnings conference 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,' ‘scheduled,' ‘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 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; the Company's ability to successfully control costs and execute on, and achieve the expected benefits from, the operational and strategic initiatives; and any adverse developments or delays encountered by the Company in securing work authorization for, or otherwise onboarding, its next 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 January 31, 2017 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 currency 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 2017 vs. 2016 First Half 2017 vs. 2016

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

Net Sales:

Worldwide 3 % (1 )% 4 % 2 % (1 )% 3 %
Americas 1 1 (1 ) (1 )
Asia-Pacific 2 2 5 5
Japan 1 (6 ) 7 (2 ) 2
Europe 3 (2 ) 5 (4 ) 4
Other 74 74 51 51
 

Comparable Store Sales:

Worldwide (2 )% (1 )% (1 )% (2 )% (1 )% (1 )%
Americas (1 ) (1 ) (2 ) (2 )
Asia-Pacific (7 ) (7 ) (5 ) (1 ) (4 )
Japan 3 (6 ) 9 1 (3 ) 4
Europe (2 ) (2 ) (2 ) (3 ) 1
Other (8 ) (8 ) (3 ) (3 )
 

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
charges a

  Non-GAAP
Year Ended January 31, 2017
SG&A expenses $ 1,769.1 $ (38.0 ) $ 1,731.1
As a % of sales       44.2 %       43.3 %
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  
Net earnings       446.1     24.0     470.1  
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 million of pre-tax expense ($16.0 million after tax expense, or $0.13 per 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 million of pre-tax expense ($8.0 million after tax expense, or $0.06 per 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
July 31,

 

Six Months Ended
July 31,

2017   2016 2017   2016
Net sales $ 959.7 $ 931.6 $ 1,859.3 $ 1,822.9
 
Cost of sales 361.5   354.5   703.5   700.3
 
Gross profit 598.2 577.1 1,155.8 1,122.6
 

Selling, general and administrative expenses

416.9   402.2   828.9   813.1
 
Earnings from operations 181.3 174.9 326.9 309.5
 
Interest and other expenses, net 8.8   13.4   18.2   24.8
 
Earnings from operations before income taxes 172.5 161.5 308.7 284.7
 
Provision for income taxes 57.5   55.8   100.8   91.5
 
Net earnings $ 115.0   $ 105.7   $ 207.9   $ 193.2
 
Net earnings per share:
 
Basic $ 0.92   $ 0.84   $ 1.67   $ 1.54
Diluted $ 0.92   $ 0.84   $ 1.66   $ 1.53
 
Weighted-average number of common shares:
 
Basic 124.5 125.3 124.6 125.7
Diluted 125.1 125.6 125.2 126.1
 
 

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)

 
     

July 31,
2017

 

January 31,
2017

 

July 31,
2016

ASSETS

 
Current assets:
Cash and cash equivalents and short-term investments $ 1,043.5 $ 985.8 $ 720.1
Accounts receivable, net 223.3 226.8 216.4
Inventories, net 2,236.9 2,157.6 2,324.8
Prepaid expenses and other current assets 218.3   203.4   215.4
 
Total current assets 3,722.0 3,573.6 3,476.7
 
Property, plant and equipment, net 939.6 931.8 944.8
Other assets, net 608.0   592.2   681.4
 
$ 5,269.6   $ 5,097.6   $ 5,102.9
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
Current liabilities:
Short-term borrowings $ 235.0 $ 228.7 $ 207.1
Current portion of long-term debt 94.8
Accounts payable and accrued liabilities 301.4 312.8 300.7
Income taxes payable 32.8 22.1 30.5
Merchandise credits and deferred revenue 78.6   69.2   64.5
 
Total current liabilities 647.8 632.8 697.6
 
Long-term debt 881.1 878.4 790.5
Pension/postretirement benefit obligations 326.1 318.6 442.1
Other long-term liabilities 213.3 193.5 190.8
Deferred gains on sale-leasebacks 43.3 45.9 53.2
Stockholders' equity 3,158.0   3,028.4   2,928.7
 
$ 5,269.6   $ 5,097.6   $ 5,102.9
 

TIF-E

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

Source: Tiffany & Co.

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