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Tiffany Reports First Quarter Results; Management Updates Annual Forecast

Tiffany & Co. (NYSE: TIF) today reported its financial results for the three-month period ended April 30, 2012 (“first quarter”). Net sales increased 8% and net earnings rose 1% to $0.64 per diluted share. If nonrecurring items recorded in the first quarter of 2011 had been excluded, net earnings would have declined 5% (see “Non-GAAP Measures” schedule).

Summary of results for the first quarter:
  • Worldwide net sales increased 8% to $819 million. On a constant-exchange-rate basis that excludes the effect of translating foreign-currency-denominated sales into U.S. dollars (see “Non-GAAP Measures” schedule), worldwide net sales rose 8% and comparable store sales rose 4%.
  • Net earnings increased 1% to $82 million, or $0.64 per diluted share, versus $81 million, or $0.63 per diluted share, in 2011.
  • Net earnings in the first quarter of 2011 had been reduced by $0.04 per diluted share for nonrecurring items related to the relocation of Tiffany’s New York headquarters staff (see “Non-GAAP Measures” schedule). Excluding those items, net earnings in the first quarter declined 5% from last year.

Michael J. Kowalski, chairman and chief executive officer, said, “In terms of our sales for the first quarter, regions outside the Americas performed generally as expected. However, the Americas region underperformed, continuing a soft trend that began in the last quarter of 2011 and compounded by the difficult comparison to substantial sales growth in last year’s first quarter. These sales results led to net earnings modestly trailing our expectations.”

Net sales highlights were as follows:
  • In the Americas region, sales rose 3% to $386 million. On a constant-exchange-rate basis, total Americas sales rose 3% and comparable store sales were flat (comparable branch store sales increased 1% and sales in the New York flagship store declined 4%) on top of a 17% increase in comparable store sales in last year’s first quarter. Combined Internet and catalog sales in the Americas increased 1%. The Americas region represents slightly less than half of worldwide sales.
  • Sales in the Asia-Pacific region increased 17% to $195 million. On a constant-exchange-rate basis, total sales rose 16%, while comparable store sales rose 10% (on top of 26% comparable store sales growth in last year’s first quarter) due to increased sales in most countries.
  • In Japan, sales rose 15% to $142 million. On a constant-exchange-rate basis, total sales and comparable store sales rose 13% and 12%, respectively; comparable store sales had declined 3% in last year’s first quarter.
  • Sales in Europe increased 3% to $88 million. On a constant-exchange-rate basis, total sales rose 7% while comparable store sales were equal to the prior year (versus 15% comparable store sales growth in last year’s first quarter) with no meaningful difference between the U.K. and overall continental Europe.
  • The Company opened four stores in the first quarter: in Mexico City, Montreal, Salt Lake City and Wuhan, China. At April 30, 2012, the Company operated 251 stores (105 in the Americas, 59 in Asia-Pacific, 55 in Japan and 32 in Europe), compared with 232 stores (96 in the Americas, 52 in Asia-Pacific, 55 in Japan and 29 in Europe) a year ago.
  • Other sales declined 14% to $9 million due to lower wholesale sales of finished products to independent distributors.

Other financial highlights:
  • Gross margin (gross profit as a percentage of net sales) declined to 57.3% in the first quarter, from 58.3% a year ago, due to higher product acquisition costs.
  • SG&A (selling, general and administrative) expenses increased 9% in the first quarter. Excluding nonrecurring costs related to the relocation of Tiffany’s New York headquarters staff in 2011, SG&A expenses increased 11% primarily due to increased labor, store occupancy and marketing costs.
  • The effective income tax rate was 34.5% in the quarter, versus 35.6% a year ago.
  • Net inventories increased 27% to $2.2 billion at April 30, 2012 from $1.7 billion a year ago. Finished goods inventories increased 16% year-over-year due to higher product acquisition costs, expanded product assortments and new store openings, as well as some effect from the lower-than-expected sales growth. A 44% increase in raw material and work-in-process inventories reflected higher product acquisition costs, expanded rough diamond sourcing and internal manufacturing.
  • Capital expenditures were $44 million in the first quarter, versus $52 million a year ago.
  • The Company spent $46 million in the first quarter to repurchase approximately 700,000 shares at an average cost of $66.42 per share. At April 30, 2012 there was $171 million available for future repurchases under the currently authorized share repurchase plan which expires in January 2013.
  • Cash and cash equivalents and short-term investments totaled $343 million at April 30, 2012, compared with $622 million a year ago. Short-term and long-term debt totaled $834 million at April 30, 2012 and represented 35% of stockholders’ equity, compared with $687 million and 30% a year ago.
  • Last week, the Company’s Board of Directors approved a 10% increase in the quarterly dividend rate, marking the 11 th increase in the past 10 years.

Mr. Kowalski added, “We are updating our forecast for the full year to reflect these first quarter results and to reflect lower near-term expectations. Although we are very early into the second quarter, worldwide sales are currently increasing by a low-single-digit percentage, reflecting difficult year-over-year comparisons and decelerating rates of economic growth in many countries. In 2011, we achieved extremely strong sales growth in the second and third quarters, especially in the Americas and Asia-Pacific regions.”

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