Tiffany Reports First Quarter Results; Board Increases Quarterly Dividend by Five Percent
In the first quarter:
- Worldwide net sales declined 3% to
$1.0 billionand comparable sales declined 5%; on a constant-exchange-rate basis, net sales were equal to the prior year and comparable sales declined 2%. These results reflected mixed performance across regions and product categories.
- Net earnings of
$125 millionwere 12% lower than the prior year’s $142 million, and net earnings per diluted share were $1.03versus $1.14in the prior year.
Net sales by region in the first quarter were as follows:
- In the
Americas, total net sales declined 4% to $406 million, and comparable sales declined 5%; on a constant-exchange-rate basis, both total net sales and comparable sales declined 4%. Management attributed these sales declines largely to lower spending by foreign tourists, which represented a continuing negative trend from the second half of last year.
Asia-Pacific, total net sales declined 1% to $324 millionand comparable sales declined 5% due to the effect of foreign currency translation; on a constant-exchange-rate basis, total sales rose 3% and comparable sales were equal to the prior year. These results reflected a continuation of strong growth in mainland Chinaand mixed results in other markets. These sales results also reflected lower spending attributed to foreign tourists.
Japan, total net sales declined 4% to $145 millionand comparable sales declined 4%; on a constant-exchange-rate basis, total sales and comparable sales were equal to the prior year. These sales results were affected by lower spending attributed to foreign tourists.
Europe, total net sales declined 4% to $102 millionand comparable sales declined 7%; on a constant-exchange-rate basis, total sales and comparable sales rose 4% and 1%, respectively. These results reflected mixed geographical performance across the region.
- Other net sales of
$26 millionwere 17% above the prior year, as increased wholesale sales of diamonds more than offset a 17% decline in comparable sales in our stores in the UAE.
- Tiffany opened two Company-operated stores in the first quarter, closed two stores and relocated two stores. At
April 30, 2019, the Company operated 321 stores (124 in the Americas, 89 in Asia-Pacific, 56 in Japan, 47 in Europeand five in the UAE), versus 314 stores a year ago (123 in the Americas, 87 in Asia-Pacific, 54 in Japan, 46 in Europeand four in the UAE).
- Sales results by jewelry category in the first quarter were as follows: Jewelry Collections rose 1%, Engagement Jewelry declined 6% and Designer Jewelry declined 14%; on a constant-exchange-rate basis, those categories increased 4%, declined 2% and declined 11%, respectively.
Other highlights in the first quarter:
- Gross margin (gross profit as a percentage of net sales) of 61.7% was below the prior year’s 63.0% . The lower margin largely reflected sales deleverage on fixed costs, changes in sales mix toward higher price point jewelry, and an increase in wholesale sales of diamonds, partly offset by lower product related costs.
- Selling, general and administrative (“SG&A”) expenses increased 3% largely due to higher store occupancy and depreciation expenses. Changes in foreign currency exchange rates had the effect of decreasing SG&A expenses by 2%.
- The effective income tax rate of 17.3% was below the prior year’s rate of 25.3%. The rate in the first quarter of 2019 included the recognition of an income tax benefit of
$7.5 million, or $0.06per diluted share, related to an increase in the estimated 2018 Foreign Derived Intangible Income (“FDII”) benefit as a result of U.S. Treasury guidance issued during the first quarter of 2019.
- The Company repurchased approximately 271,000 shares of its Common Stock in the first quarter at a total cost of
$25.4 millionand an average cost of approximately $94per share. The Company has approximately $610 millionof authorization remaining to repurchase shares under a program that was approved by the Company’s Board of Directors in May 2018for up to $1.0 billionof repurchases and which expires in January 2022.
- Net inventories at
April 30, 2019were 6% above the prior year due to a higher level of finished goods inventories, reflecting recent sales performance and strategic investments in High Jewelry.
April 30, 2019, cash and cash equivalents and short-term investments totaled $763 million. Total debt (short-term borrowings and long-term debt) of $1.0 billionrepresented 32% of stockholders’ equity, versus 30% a year ago.
Fiscal 2019 Outlook:
Management’s guidance for fiscal 2019 includes: (i) worldwide net sales increasing by a low-single-digit percentage over the prior year; (ii) net earnings per diluted share increasing by a low-to-mid-single-digit percentage; and (iii) a continued expectation for a decline in net earnings per diluted share in the second quarter of the year, largely reflecting continuing sales pressures from the effect of lower foreign tourist spending, difficult comparisons to strong growth in last year’s second quarter and sales deleverage on fixed costs. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including, to varying degrees: (i) a low-single-digit increase in comparable sales, with varying results across the regions; (ii) worldwide gross retail square footage increasing 3%, net through eight store openings, six closings and 15 relocations; (iii) tariffs increasing on jewelry that the Company exports from the U.S. to
Management also expects: (i) net cash provided by operating activities of at least
Mr. Bogliolo said, “Tiffany has the financial strength to invest in growing its business while also returning capital to shareholders. We are pleased to announce this 18th dividend increase in the past 17 years.”
Today’s Conference Call:
The Company will conduct a conference call today at
Next Scheduled Announcement:
The Company expects to report financial results for its second quarter ending
Today, with more than 14,000 employees,
The historical trends and results reported in this document and on our first 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 2019 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,’ ‘indicates,’ ‘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; store productivity; the renovation of the Company’s
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 (including changes effected by the recent revisions to the U.S. tax code) or changes in the guidance related to, or interpretation of, such policies and regulations; shifting tourism trends; regional instability; violence (including terrorist activities); political activities or events (including the potential for rapid and unexpected changes in government, economic and political policies, the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries); 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 or 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 through open market transactions, including through Rule 10b5-1 plans and accelerated share repurchase or other structured repurchase transactions, and/or privately negotiated transactions; the Company’s receipt of any required approvals to the aforementioned renovation of its
Additional information about potential risks and uncertainties that could affect the Company’s business and financial results is included under “Risk Factors” and in “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 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 tables reconcile the sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:
|First Quarter 2019 vs. 2018|
First Quarter 2019 vs. 2018
Jewelry sales by product category:
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||383.9||382.3|
|Selling, general and administrative expenses||458.3||446.6|
|Earnings from operations||160.9||204.3|
|Interest and other expenses, net||9.4||13.8|
|Earnings from operations before income taxes||151.5||190.5|
|Provision for income taxes||26.3||48.2|
|Net earnings per share:|
|Weighted-average number of common shares:|
|TIFFANY & CO. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
(Unaudited, in millions)
|April 30, 2019||January 31, 2019||April 30, 2018|
|Cash and cash equivalents and short-term investments||$||762.7||$||855.3||$||1,211.9|
|Accounts receivable, net||210.5||245.4||227.7|
|Prepaid expenses and other current assets||215.8||230.8||223.0|
|Total current assets||3,642.8||3,759.5||3,980.2|
|Operating lease right of use assets||1,066.1||—||—|
|Property, plant and equipment, net||1,019.2||1,026.7||965.6|
|Other assets, net||547.6||546.8||504.8|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|Accounts payable and accrued liabilities||392.6||513.4||380.6|
|Current portion of operating lease liabilities||226.3||—||—|
|Income taxes payable||40.6||21.4||124.3|
|Merchandise credits and deferred revenue||72.1||69.9||82.7|
|Total current liabilities||873.7||718.1||684.3|
|Pension/postretirement benefit obligations||284.9||312.4||290.7|
|Long-term operating lease liabilities||952.1||—||—|
|Other long-term liabilities||111.8||257.1||286.1|
|Deferred gains on sale-leasebacks||—||31.1||38.0|
Mark L. Aaron