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.
- 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.
- 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 11th increase in the past 10 years.
Updated Outlook for 2012:Management’s outlook for the full year ending January 31, 2013 is based on the following assumptions (which may or may not prove valid and all of which are approximate):
|a)||Worldwide net sales (in U.S. dollars) increasing 7-8%, versus the previous expectation calling for 10% growth.|
|b)||Adding 24 Company-operated stores including nine in the Americas, eight in Asia-Pacific, two in Europe, and commencing operation of five stores in the United Arab Emirates. Four of these stores were opened in the first quarter.|
|c)||The operating margin modestly below the prior year (excluding nonrecurring items recorded in 2011).|
|d)||Interest and other expenses, net of approximately $55 million. This forecast now includes the expected cost of additional debt incurrence for working capital, repayment of maturing debt and general corporate purposes.|
|e)||An effective income tax rate of 34 - 35%.|
|f)||Net earnings per diluted share in a range of $3.70 - $3.80. This compares with the previous forecast of $3.95 - $4.05 per diluted share; approximately $0.20 of the decrease is tied to a reduction in operating expectations and $0.05 is related to the additional debt incurrence. All of the annual earnings growth over 2011 is expected to occur in the fourth quarter, with net earnings in the second and third quarters expected to be below last year.|
|g)||Net inventories increasing 10%, versus a previous expectation of 15%.|
|h)||Capital expenditures of $240 million.|
|TIFFANY & CO. AND SUBSIDIARIES (Unaudited)|
|The Company’s reported sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar.|
|The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating sales made outside the U.S. into U.S. dollars (“constant-exchange-rate basis”). Management believes this constant-exchange-rate basis provides a more representative assessment of sales performance and provides better comparability between reporting periods.|
|The Company’s management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. The following table reconciles sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:|
|First Quarter 2012 vs. 2011|
|GAAP Reported||Translation Effect||Constant- Exchange- Rate Basis|
|Comparable Store Sales:|
|Three Months Ended April 30, 2012||Three Months Ended April 30, 2011|
|(in thousands, except per share amounts)||$ (after tax)||Diluted EPS||$ (after tax)||Diluted EPS|
|Net earnings, as reported||$||81,534||$||0.64||$||81,063||$||0.63|
|Headquarters relocation a||—||—||5,003||0.04|
|Net earnings, as adjusted||$||81,534||$||0.64||$||86,066||$||0.67|
|TIFFANY & CO. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS|
|(Unaudited, in thousands, except per share amounts)|
|Three Months Ended April 30,|
|Cost of sales||350,152||317,325|
|Selling, general and administrative expenses||334,033||307,727|
|Earnings from operations||134,985||135,966|
|Interest and other expenses, net||10,554||10,147|
|Earnings from operations before income taxes||124,431||125,819|
|Provision for income taxes||42,897||44,756|
|Net earnings per share:|
|Weighted-average number of common shares:|
|TIFFANY & CO. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(Unaudited, in thousands)|
|April 30,||January 31,||April 30,|
|Cash and cash equivalents and short-term investments||$||343,029||$||442,190||$||622,320|
|Accounts receivable, net||181,641||184,085||175,926|
|Deferred income taxes||91,280||83,124||49,118|
|Prepaid expenses and other current assets||127,295||107,064||122,694|
|Total current assets||2,933,114||2,889,675||2,690,953|
|Property, plant and equipment, net||766,874||767,174||685,457|
|Other assets, net||506,681||502,143||381,722|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Current portion of long-term debt||60,357||60,822||0|
|Accounts payable and accrued liabilities||285,193||328,962||216,788|
|Income taxes payable||31,971||60,977||14,600|
|Merchandise and other customer credits||62,074||62,943||67,259|
|Total current liabilities||682,363||626,677||396,279|
|Pension/postretirement benefit obligations||309,545||338,564||198,315|
|Other long-term liabilities||190,514||186,802||171,226|
|Deferred gains on sale-leasebacks||114,113||119,692||124,809|