Tiffany & Co. (TIF)

Q3 2011 Earnings Call

November 29, 2011 8:30 am ET

Executives

Mark L. Aaron - Vice President of Investor Relations

Patrick F. McGuiness - Chief Financial Officer and Senior Vice President

Presentation

Operator

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Good day, everyone, and welcome to this Tiffany & Co.'s third quarter conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Mark Aaron, Vice President of Investor Relations. Please go ahead, sir.

Mark L. Aaron

Thank you, everyone, for joining us. On today's conference call, Pat McGuiness, Tiffany's Chief Financial Officer, and I, will review Tiffany's third quarter results and the outlook for the rest of the year.

Before we continue, please note Tiffany's Safe Harbor provisions that statements made on this call that are not historical facts are forward-looking statements. Actual results might differ materially from the expectations projected in those forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially is set forth in Tiffany's 2010 Annual Report on Form 10-K and in other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Now let's proceed. Following a robust first half of the year, we are very pleased this morning to report strong third quarter results. As an overview, the 21% worldwide sales growth, or 17% on a constant-exchange-rate basis, exceeded our expectations to the solid performance in most regions that demonstrate the advantage and opportunities for us from an increasingly [indiscernible] of stores and customers.

The operating margin rose 3.5 points due to excellent SG&A expense leverage. As a result, net earnings rose 63%; and earnings per diluted share were $0.70 in the quarter, up from $0.43 per diluted share last year. Excluding nonrecurring items last year, net earnings still rose by a strong 52%. And despite global economic uncertainties, we slightly raised our full year earnings outlook to reflect some of the better-than-anticipated third quarter performance.

Now let's look at the details of the quarter, starting with a regional sales review. In the Americas, total sales rose by a better-than-expected 17% due to an increase in the average price-per-unit sold. In addition, we continue to see unit sales growth in all price strata above $250, with notable increases at the highest price points. One example of the stronger activity at the high end was the great success of our annual Blue Book event for top customers held in October.

On a constant-exchange-rate basis, comparable store sales in the Americas rose 15% on top of a 5% increase last year. Broadly speaking, our stores in the U.S. performed well, as did our stores in Latin America and Canada. Sales in our New York flagship store rose 24% versus a 3% decline last year, with most of that large increase due to sales from foreign tourists.

Conversely, sales growth in New York area brand stores was more modest, as it reflects a higher percentage of local customer demand. In fact, the sizable portion of our total U.S. sales increase in the quarter came from sales to foreign visitors, particularly to customers from Asia and to a lesser extent from Europe, but there was also good increase in sales to U.S. customers. On a side note, if you are in New York, we invite you to be charmed by our especially festive holiday windows of our Fifth Avenue flagship store.

Comparable Americas brand store sales increased 13% on top of an 8% increase in last year's third quarter. It's worth noting that geographically, the 13% branch store comp increase reflected much greater strength than the Western half of the U.S. including markets like Texas and California, as well as very strong sales growth in Hawaii and Guam driven by Japanese tourist spending.

We opened 3 stores in the Americas in the quarter: including one in Richmond Virginia, our fourth store in Las Vegas and our third location in Brazil, in the Iguatemi department store in Brasilia.

Combined Internet and catalog sales in the Americas increased 11% on top of the 7% increase last year largely due to an increase in average sales per order and the smaller increase in the number of orders shipped.

On a related note, we were pleased to see it recently reported that L2, a think tank for digital innovations ranked Tiffany highest in their digital IQ index in the jewelry and watch categories. L2 cited digital confidence as a point of differentiation for our brand because we offer a website that is searchable, shareable and mobile-optimized, and at high social media efforts to a broader digital strategy. I can share with you that we plan to further enhance our social media program, and dramatically revamp our website next year to derive strong marketing and sales benefits.

Now let's turn to the Asia Pacific regions. Total sales in the quarter surpassed our expectations by surging 44% due to similar growth in both the number of units sold and in the average price-per-unit sold. On a constant-exchange-rate basis, total sales rose 40%, with comp store sales up 36% on top of 11% comp increase last year. The Asia Pacific sales growth was strong throughout the region, with especially strong double-digit growth in the Greater China market, but also noteworthy increases in Australia and Singapore.

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