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Tiffany Reports Its Second Quarter Results

Net sales highlights were as follows:

  • In the Americas region, total sales increased 2% to $444 million in the second quarter and 4% to $852 million in the first half. On a constant-exchange-rate basis, total sales also rose 2% and 4% in the respective periods; comparable store sales were unchanged in the quarter and rose 1% in the half, led by growth in Tiffany’s New York flagship store sales.
  • Total sales in the Asia-Pacific region rose 20% to $208 million in the second quarter and 17% to $432 million in the first half. On a constant-exchange-rate basis, total sales also rose 20% and 17%, and comparable store sales increased 13% and 11% in the respective periods, led by especially strong sales growth in Greater China.
  • Business in Japan continued to be strong in the second quarter. The negative translation effect from a substantially weaker yen caused total sales to decline 14% to $136 million in the second quarter and 7% to $281 million in the first half. However, on a constant-exchange-rate basis, total sales increased 7% in the second quarter and 14% in the first half, due to comparable store sales growth of 8% and 14% with strong growth in engagement and higher-end jewelry categories.
  • Total sales in Europe rose 11% to $111 million in the second quarter and 9% to $204 million in the first half. On a constant-exchange-rate basis, total sales rose 10% and 9% in the respective periods and comparable store sales rose 7% and 6% due to sales growth in the United Kingdom and most of continental Europe.
  • Other sales increased 33% to $26 million in the second quarter and 87% to $53 million in the first half, primarily reflecting the conversion in July 2012 of five TIFFANY & CO. stores in the United Arab Emirates from independently-operated to Company-operated.
  • Tiffany opened three stores in the second quarter: in Hong Kong, in Verona, Italy and in Villahermosa, Mexico, and closed one in Tokyo, Japan. At July 31, 2013, the Company operated 277 stores (116 in the Americas, 67 in Asia-Pacific, 54 in Japan, 35 in Europe and five in the U.A.E.), versus 260 stores (106 in the Americas, 61 in Asia-Pacific, 55 in Japan and 33 in Europe and five in the U.A.E.) a year ago.

Other financial highlights:
  • Gross margin (gross profit as a percentage of net sales) increased to 57.5% in the second quarter from 56.3% a year ago, and gross margin was unchanged at 56.8% in the first half. During the second quarter and first half, gross margin increasingly benefitted from diminishing product cost pressure and price increases taken earlier in the year. A shift in sales mix toward higher-priced, lower gross margin products continued to impact gross margin.
  • SG&A (selling, general and administrative) expenses increased 3% in the second quarter and 6% in the first half. The growth in both periods was due to store-related costs and higher marketing spending, but was partly mitigated by the translation effect from a stronger U.S. dollar. In addition, $9 million of expenses had been recorded in the first quarter tied to specific cost reduction initiatives related to staffing reductions, as well as subleasing of office space (see “Non-GAAP Measures” schedule).
  • Other expenses, net of $15 million in the second quarter were up from $14 million last year, and were $27 million in the first half versus $25 million last year.
  • Effective income tax rates were 34.2% in the second quarter and 34.5% in the first half, compared with 34.6% and 34.5% in last year’s respective periods.
  • Cash and cash equivalents were $490 million at July 31, 2013, versus $366 million a year ago. Total short-term and long-term debt of $964 million at July 31, 2013 represented 35% of stockholders’ equity, compared with $940 million and 39% a year ago.
  • Net inventories of $2.3 billion at July 31, 2013, were 4% higher than a year ago. Finished goods inventories rose to support new stores and expanded product assortments, while combined raw material and work-in-process inventories declined slightly from last year. Net inventories rose 7% on a constant-exchange-rate basis.

Mr. Kowalski added, “We are pleased to have achieved healthy earnings growth in the first half of the year. Looking forward, we are equally excited about the initiatives we are pursuing in product development, marketing communications and store expansion, all intended to further enhance Tiffany’s strong brand position and take fuller advantage of its long-term growth opportunities in the global luxury market.”

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