Tiffany & Co. (NYSE: TIF) today reported its financial results for the fourth quarter and fiscal year ended January 31, 2013. In the quarter, worldwide net sales increased 4% and net earnings rose 1%. In the year, worldwide net sales increased 4% while net earnings declined 5% (or 11% when excluding nonrecurring items in the prior year – see “Non-GAAP Measures” schedule). Earnings per diluted share were $1.40 in the quarter and $3.25 in the year. Management also provided its financial forecast for the fiscal year ending January 31, 2014. In the three months (“fourth quarter”) ended January 31, 2013:
- Worldwide net sales rose 4% to $1.2 billion. 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 5% due to growth in all regions and comparable store sales equaled the prior year.
- Net earnings increased 1% to $180 million, or $1.40 per diluted share, versus $178 million, or $1.39 per diluted share, in the prior year.
- Worldwide net sales increased 4% to $3.8 billion. On a constant-exchange-rate basis, worldwide net sales increased 5% due to growth in all regions and comparable store sales rose 1%.
- Net earnings declined 5% to $416 million, or $3.25 per diluted share, from $439 million, or $3.40 per diluted share, in the prior year.
- Net earnings in fiscal 2011 had included $26 million, or $0.20 per diluted share, for nonrecurring items related to the relocation of Tiffany’s New York headquarters staff. Excluding those nonrecurring items, net earnings of $3.25 per diluted share were 10% below last year’s $3.60.
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.
- 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.
Outlook for 2013:For the fiscal year ending January 31, 2014, management’s forecast is based on the following assumptions (which are approximate and may or may not prove valid):
|a)||Worldwide net sales growth of 6%-8% in U.S. dollars. On a constant-exchange-rate basis, an expected high-single-digit percentage increase in worldwide net sales includes sales growth in all regions, ranging from a mid-teens percentage increase in Asia-Pacific to a low-single-digit increase in Japan.|
|b)||Opening a total of 14 (net) Company-operated stores including five in the Americas, seven in Asia-Pacific, three in Europe and closing one in Japan, as well as refurbishing a number of existing locations around the world.|
|c)||Operating earnings increasing in line with sales growth; a modest improvement in the SG&A expense ratio, due to sales leverage on fixed costs, is expected to be offset by a modestly lower gross margin largely tied to a product sales mix skewed toward higher-priced categories.|
|d)||Interest and other expenses, net of $58 million.|
|e)||An effective income tax rate of 35%.|
|f)||Net earnings from operations increasing 6%-9% to a range of $3.43-$3.53 per diluted share. Net earnings from operations are expected to decline approximately 15%-20% in the first quarter due to gross margin pressure and higher marketing-related costs, to be followed by earnings growth in all subsequent quarters. In addition, this forecast excludes $0.05 per diluted share of expected first quarter charges for staffing and occupancy adjustments.|
|g)||Net inventories increasing 5%; capital expenditures of $230 million; and free cash flow (cash flow from operating activities less capital expenditures) of $300 million (see “Non-GAAP Measures” schedule), versus $109 million in 2012.|
TIFFANY & CO. AND SUBSIDIARIES(Unaudited)NON-GAAP MEASURES The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The Company’s management does not, nor does it suggest that investors should, consider non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. Net Sales The Company’s reported sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar. Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating sales made outside the U.S. into U.S. dollars (“constant-exchange-rate basis”). Management believes this constant-exchange-rate basis provides a more representative assessment of sales performance and provides better comparability between reporting periods. The following table reconciles sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:
|Fourth Quarter 2012 vs. 2011||Year-to-Date 2012 vs. 2011|
|GAAPReported||TranslationEffect||Constant-Exchange-Rate Basis||GAAPReported||TranslationEffect||Constant-Exchange-Rate Basis|
|Comparable Store Sales:|
|Year EndedJanuary 31, 2013||Year EndedJanuary 31, 2012|
|(in thousands, except per share amounts)||$(after tax)||DilutedEPS||$(after tax)||DilutedEPS|
|Net earnings, as reported||$||416,157||$||3.25||$||439,190||$||3.40|
|Headquarters relocation a||–||–||25,994||0.20|
|Net earnings, as adjusted||$||416,157||$||3.25||$||465,184||$||3.60|
|a||On a pre-tax basis includes charges of $213,000 within cost of sales and $42,506,000 within SG&A for the year ended January 31, 2012 associated with Tiffany’s consolidation of its New York headquarters staff within one location.|
|(in thousands)||For the year endedJanuary 31, 2013|
|Net cash provided by operating activities||$||328,290|
|Free cash inflow||$||108,760|
|TIFFANY & CO. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS|
|(Unaudited, in thousands, except per share amounts)|
|Three Months Ended January 31,||Year Ended January 31,|
|Cost of sales||504,954||470,525||1,630,965||1,491,783|
|Selling, general and administrative expenses||440,458||431,172||1,466,067||1,442,728|
|Earnings from operations||290,357||285,743||697,217||708,426|
|Interest and other expenses, net||14,054||13,316||53,641||43,475|
|Earnings from operations before income taxes||276,303||272,427||643,576||664,951|
|Provision for income taxes||96,660||94,032||227,419||225,761|
|Net earnings per share:|
|Weighted-average number of common shares:|
|TIFFANY & CO. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(Unaudited, in thousands)|
|January 31,||January 31,|
|Cash and cash equivalents||$||504,838||$||433,954|
|Accounts receivable, net||173,998||184,085|
|Deferred income taxes||79,508||83,124|
|Prepaid expenses and other current assets||158,911||115,300|
|Total current assets||3,151,589||2,889,675|
|Property, plant and equipment, net||818,838||767,174|
|Other assets, net||660,423||502,143|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Current portion of long-term debt||0||60,822|
|Accounts payable and accrued liabilities||295,424||328,962|
|Income taxes payable||30,487||60,977|
|Merchandise and other customer credits||66,647||62,943|
|Total current liabilities||586,592||626,677|
|Pension/postretirement benefit obligations||361,246||338,564|
|Other long-term liabilities||209,732||186,802|
|Deferred gains on sale-leasebacks||96,724||119,692|