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TheStreet Open House

Tiffany’s Second Quarter Sales And Earnings In Line With Company Expectations

Net sales highlights were as follows:

  • Sales in the Americas region declined 1% to $434 million in the second quarter and rose 1% to $820 million in the first half. On a constant-exchange-rate basis, total sales were unchanged in the quarter and rose 2% in the half; on that basis, comparable store sales declined 5% in the second quarter and 3% in the first half (sales declined 9% and 7% in the New York flagship store while comparable branch store sales declined 4% and 2%). In last year’s second quarter, comparable store sales on a constant-exchange-rate basis had increased 41% in the New York flagship store and 19% in branch stores. Combined Internet and catalog sales in the Americas rose 3% in the second quarter (on top of a 16% increase last year) and 2% in the first half.
  • In the Asia-Pacific region, total sales rose 1% to $174 million in the second quarter and 8% to $369 million in the first half. On a constant-exchange-rate basis, total sales increased 3% and 9% in the quarter and half, while comparable store sales declined 5% in the quarter (on top of a 41% increase last year) and rose 2% in the half, due to mixed performance across the region.
  • In Japan, total sales increased 11% to $159 million in the second quarter and 13% to $300 million in the first half. On a constant-exchange-rate basis, both total sales and comparable store sales rose 10% in the quarter and increased 11% in the half; comparable store sales had increased 8% in last year’s second quarter.
  • Sales in Europe declined 1% to $100 million in the second quarter and increased 1% to $188 million in the first half. On a constant-exchange-rate basis, total sales increased 8% in both the quarter and first half; comparable store sales increased 2% in the quarter (sales growth in overall continental Europe was mostly offset by relative softness in the U.K.) on top of an 11% increase last year, and rose 1% in the half.
  • Other sales increased 12% to $20 million in the second quarter. During the quarter, five TIFFANY & CO. stores in the United Arab Emirates (three in Dubai and two in Abu Dhabi) were converted from independently-operated distribution to Company-operated retail stores. Other sales rose 3% to $28 million in the first half.
  • The Company added nine stores in the second quarter: in Mexico City, in Shanghai and Nanjing, China and in Nice, France, and commenced operation of the five stores in the U.A.E. At July 31, 2012, the Company operated 260 stores (106 in the Americas, 61 in Asia-Pacific, 55 in Japan, 33 in Europe and five in the U.A.E.), compared with 236 stores (98 in the Americas, 52 in Asia-Pacific, 55 in Japan and 31 in Europe) a year ago.

Other financial highlights:

  • Gross margin (gross profit as a percentage of net sales) was 56.3% in the second quarter and 56.8% in the first half, compared with 59.0% and 58.7% in the respective 2011 periods. The year-over-year declines largely resulted from higher product acquisition costs, as well as reduced sales leverage on fixed costs.
  • SG&A (selling, general and administrative) expenses declined 8% in the second quarter, and in the first half were approximately equal to the prior year. However, excluding nonrecurring costs related to the relocation of Tiffany’s New York headquarters staff in 2011’s second quarter, SG&A expenses increased 1% in the quarter due to higher store occupancy costs mostly offset by the timing of marketing spending, and rose 6% in the half due to higher store occupancy and labor costs.
  • Other expenses, net of $14.3 million in the second quarter were higher than $9.6 million in the prior year, with the largest portion of the increase related to higher interest expense. Other expenses, net of $24.8 million in the first half compared with $19.8 million in the prior year.
  • The effective income tax rate was 34.6% in the second quarter, versus 31.2% a year ago when the Company had reversed a valuation allowance against certain deferred tax assets. The effective rate was 34.5% in the first half, versus 33.4% a year ago.
  • Cash and cash equivalents and short-term investments totaled $367 million at July 31, 2012, versus $565 million a year ago. Short-term and long-term debt totaled $940 million at July 31, 2012 and represented 39% of stockholders’ equity, compared with $694 million and 29% a year ago. During the second quarter, the Company issued $250 million of Senior Notes with a 4.40% coupon and principal payments due over a 10 to 30-year period. A portion of the proceeds was used to repay in full $60 million of 6.56% Senior Notes that matured in July and the remainder is for general corporate purposes including initially reducing short-term indebtedness under the revolving credit facility.
  • Net inventories of $2.2 billion at July 31, 2012 were 21% higher than a year ago, due to approximately equal rates of growth in both finished goods and in combined raw material and work-in-process inventories. This reflected higher product acquisition costs, new store openings, growth in rough diamond sourcing and internal manufacturing, and expanded product assortments.

Mr. Kowalski added, “We think it is only prudent to maintain a cautious near-term outlook about global economic conditions and the effects on customer spending, with year-over-year growth comparisons in the next few months also being pressured by the strong increases we experienced last year. At the same time, we are determined to further strengthen Tiffany’s competitive position by expanding our store and customer base and introducing enticing new designs, all intended to generate solid long-term financial performance.”

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