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Tiffany Reports Fourth Quarter And Full Year Results; Management Provides Its Financial Outlook For 2013

Stocks in this article: TIF

Net sales highlights were as follows:

  • Total sales in the Americas region increased 2% to $620 million in the fourth quarter and 2% to $1.8 billion in the full year (representing 48% of 2012 worldwide sales). On a constant-exchange-rate basis, total sales increased 2% in both the quarter and full year; on that basis, comparable store sales declined 2% in both the quarter and full year (sales in the New York flagship store declined 3% in both the quarter and full year, while comparable branch store sales were 2% below both prior-year periods with no meaningful geographical differences in the U.S.). Internet and catalog sales rose 6% and 4% in the fourth quarter and full year.
  • In the Asia-Pacific region, total sales rose 13% to $254 million in the fourth quarter and 8% to $810 million, or 21% of worldwide sales, in the full year. On a constant-exchange-rate basis, total sales rose 10% in the fourth quarter due to sales growth in Greater China and in other markets and rose 8% in the full year; on that basis, comparable store sales rose 6% in the quarter and 2% in the full year.
  • Total sales in Japan declined 6% to $192 million in the fourth quarter, reflecting a weaker Japanese yen versus the U.S. dollar, and increased 4% to $639 million, or 17% of worldwide sales, in the full year. However, on a constant-exchange-rate basis, total sales rose 2% in the quarter and 6% in the full year; on that basis, comparable store sales rose 2% and 7% in the quarter and full year.
  • In Europe, total sales increased 3% to $146 million in the fourth quarter due to mixed performances by country and also rose 3% to $432 million, or 11% of worldwide sales, in the full year. On a constant-exchange-rate basis, total sales increased 3% and 7% in the quarter and full year and comparable store sales were unchanged in the quarter and rose 2% in the full year.
  • Other sales nearly doubled to $24 million in the fourth quarter and rose 41% to $73 million in the full year. The strong growth in both periods reflected the conversion in July of five TIFFANY & CO. stores in the United Arab Emirates from independently-operated distribution to Company-operated retail stores.
  • Tiffany added 28 Company-operated stores in the full year: 13 in the Americas with four in the U.S., six in Canada (including four department-store boutiques in Canada that were converted to Company-operated locations), two in Mexico and one in Brazil; eight in Asia-Pacific including six in China, one in Australia and one in Singapore; two in Europe including one in France and one in the Czech Republic; and the five stores in the U.A.E. At January 31, 2013, the Company operated 275 stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and five in the U.A.E.), compared with 247 stores (102 in the Americas, 58 in Asia-Pacific, 55 in Japan and 32 in Europe) a year ago.

Other financial highlights:

  • Gross margins (gross profit as a percentage of net sales) of 59.1% in the fourth quarter and 57.0% in the full year were below margins of 60.4% and 59.0% in the respective prior-year periods. The declines largely reflected pressures from precious metal and diamond costs; a shift in sales mix toward higher-priced, lower margin products; and reduced sales leverage on fixed costs.
  • SG&A (selling, general and administrative) expenses increased 2% in the fourth quarter. In the full year, SG&A expenses increased 2%; however, if nonrecurring costs related to the 2011 relocation of Tiffany’s New York headquarters staff were excluded, SG&A expense would have increased 5% (see “Non-GAAP Measures” schedule) in the full year due to store occupancy costs related to new and existing stores, increased marketing spending and higher labor costs.
  • Other expenses, net were $14 million and $54 million in the fourth quarter and full year, compared with $13 million and $43 million in the respective prior-year periods. Increased average borrowing levels have resulted in higher interest expense in both periods.
  • The effective income tax rates were 35.0% in the fourth quarter and 35.3% in the full year, compared with 34.5% and 34.0% in the respective prior-year periods.
  • Cash and cash equivalents totaled $505 million at January 31, 2013, versus $434 million at the prior year-end. Short-term and long-term debt totaled $959 million at January 31, 2013 and represented 37% of stockholders’ equity, compared with $712 million and 30% a year ago.
  • Net inventories of $2.2 billion at January 31, 2013 were 8% higher than the prior year-end, reflecting 13% growth in finished goods inventory and 2% growth in combined raw materials and work-in-process, all to support new store openings and expanded product assortments.
  • Capital expenditures of $220 million in 2012 were modestly lower than $239 million in the prior year; 2011 had included expenditures for the relocation of Tiffany’s headquarters staff.
  • In the full year, the Company spent $54 million to repurchase approximately 813,000 shares of its Common Stock at an average cost of $66.54 per share, but did not repurchase shares in the fourth quarter. Approximately $164 million remains available for repurchases under the currently authorized program which expires in January 2014.

Mr. Kowalski added, “We will be pursuing important growth opportunities in 2013, with plans including exciting new jewelry collections, enhanced customer communications through print and digital media, and expansion of our global base with additional stores. Tiffany is well positioned to achieve net earnings growth of 6%-9% and healthy free cash flow.”

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