TIFFANY + CO. : Tiffany Reports Substantially Higher-Than-Expected Sales and Earnings Growth in Its Second Quarter
08/26/2011| 07:00am US/Eastern
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Tiffany & Co. (NYSE: TIF) today announced its financial results for the
second quarter ended July 31, 2011. Net sales rose 30% over the prior
year due to strong growth in all geographic regions. Net earnings
increased 33% and, excluding nonrecurring charges, rose 58% in the
quarter (see attached "Non-GAAP Measures" schedule). Net earnings were
$0.69 per diluted share in the quarter and, excluding nonrecurring
charges, were $0.86 per diluted share. Management increased its earnings
forecast for fiscal 2011 to reflect the better-than-expected second
quarter results.
Michael J. Kowalski, chairman and chief executive officer, said, "We are
extremely pleased by these results which confirm the growing global
appeal of Tiffany's product offerings. In addition, we have been able to
absorb precious metal and gemstone cost increases while improving our
gross and operating margins."
Second quarter (three months ended July 31, 2011)
summary:
Worldwide net sales rose 30% to $872.7 million. On a
constant-exchange-rate basis excluding the effect of translating
foreign-currency-denominated sales into U.S. dollars, worldwide net
sales increased 24% and comparable store sales rose 22% (see "Non-GAAP
Measures" schedule).
Net earnings increased 33% to $90.0 million, or $0.69 per diluted
share, versus $67.7 million, or $0.53 per diluted share, in the prior
year.
Earnings in the second quarter of 2011 were reduced by $0.16 per
diluted share for nonrecurring expenses (see SG&A expenses below)
related to the relocation of Tiffany's New York headquarters staff.
Earnings in the second quarter of 2010 were reduced by $0.02 per
diluted share for similarly-related nonrecurring expenses. Excluding
those nonrecurring items in both years, net earnings rose 58% in the
quarter and were $0.86 per diluted share, versus $0.55 per diluted
share in the prior year (see "Non-GAAP Measures" schedule).
First half (six months ended July 31, 2011)
summary:
Worldwide net sales rose 25% to $1.6 billion. On a
constant-exchange-rate basis, worldwide net sales and comparable store
sales rose 20% and 18%.
Net earnings rose 30% to $171.1 million, or $1.32 per diluted share,
compared with $132.1 million, or $1.03 per diluted share.
Earnings in the first half of 2011 were reduced by $0.20 per diluted
share for nonrecurring items. Excluding nonrecurring items in both
years, net earnings rose 49% in the first half and were $1.52 per
diluted share, versus $1.03 per diluted share in the prior year (see
"Non-GAAP Measures" schedule).
Net sales highlights by segment:
In the Americas, sales rose 25% to $438.2 million in the second
quarter and 22% to $812.9 million in the first half. On a
constant-exchange-rate basis, total sales and comparable store sales
in the quarter rose 24% and 23% and in the first half rose 21% and 20%
(in the quarter and first half, sales in the New York flagship store
increased 41% and 33%, benefiting from strong foreign tourist demand,
and comparable branch store sales in the Americas increased 19% and
17%). Internet and catalog sales in the Americas increased 16% and 15%.
In Asia-Pacific, sales increased 55% to $173.2 million in the second
quarter and 46% to $340.5 million in the first half. On a
constant-exchange-rate basis, sales increased 45% and 38% and
comparable store sales increased 41% and 33% due to growth in most
countries with the largest increase in the greater China region.
In Japan, sales rose 21% to $142.5 million in the second quarter and
14% to $265.9 million in the first half. On a constant-exchange-rate
basis, total sales increased 8% and 2% due to comparable store sales
growth of 8% and 3%.
In Europe, sales increased 32% to $101.3 million in the second quarter
and 28% to $187.0 million in the first half. On a
constant-exchange-rate basis, sales increased 17% and 18% and
comparable store sales rose 11% and 12% reflecting growth in most
countries.
At July 31, 2011, the Company operated 236 stores (98 in the Americas,
55 in Japan, 52 in Asia-Pacific and 31 in Europe), versus 223 a year
ago (91 in the Americas, 57 in Japan, 48 in Asia-Pacific and 27 in
Europe).
Other sales increased 46% to $17.4 million in the second quarter and
14% to $27.5 million in the first half. In both periods, there were
increased wholesale sales of finished products to independent
distributors within emerging markets, partly offset in the first half
by a decline in wholesale sales of rough diamonds.
Other financial highlights:
Gross margin (gross profit as a percentage of net sales) was 59.0% in
the second quarter and 58.7% in the first half, compared with 57.8% in
both of the respective periods last year. The increases were due to
sales leverage on fixed costs.
SG&A (selling, general and administrative) expenses rose 37% in the
second quarter and 28% in the first half, which included nonrecurring
costs of $34 million in the second quarter and $43 million in the
first half, versus $4 million in both of the prior-year periods,
related to the relocation of Tiffany's New York headquarters staff
(see "Non-GAAP Measures" schedule). Excluding the nonrecurring costs,
SG&A expenses rose 26% in the quarter and 21% in the first half
reflecting higher store occupancy, staffing, marketing and
sales-related variable costs.
The effective income tax rate was 31.2% in the quarter versus 34.0%
last year, with the decline primarily due to a reversal of a valuation
allowance against certain deferred tax assets. The rate was 33.4% in
the first half, versus 32.5% last year which had included a
nonrecurring tax benefit of $0.02 per share primarily related to a
change in the tax status of certain subsidiaries.
At July 31, 2011, cash and cash equivalents and short-term investments
totaled $565.2 million versus $614.7 million last year. Total
short-term and long-term debt represented 29% of stockholders' equity
compared with 40% a year ago.
Net inventories at July 31, 2011 were 18% above the prior year. The
increase was planned to support sales growth, store openings, product
introductions and expanded assortments, and higher product and raw
material acquisition costs. Almost one-fourth of the increase resulted
from the effect of translating stronger foreign currencies into U.S.
dollars.
The Company repurchased approximately 330,000 shares of its Common
Stock in the second quarter at a total cost of $24.5 million, or an
average cost of $74.29 per share. In the first half, the Company spent
$52.5 million to repurchase approximately 783,000 shares at an average
cost of $67.00 per share. At July 31st, approximately $340
million remained available for future repurchases under the currently
authorized plan. That plan expires in January 2013.
Mr. Kowalski said, "Despite continuing economic uncertainty, our strong
first half performance gives us ample reason to remain confident about
our prospects for the balance of the year. We are encouraged that total
worldwide sales growth in the third quarter-to-date is continuing to
exceed our expectations due to noteworthy strength in the Americas,
Asia-Pacific and Japan, demonstrating, once again, the attraction of the
TIFFANY & CO. brand. We are increasing our full year earnings forecast
to $3.65 - $3.75 per diluted share (not including nonrecurring expenses)
from the previous forecast of $3.45 - $3.55 per diluted share due to the
better-than-expected second quarter results."
Outlook for 2011:
Management's outlook for the year ending January 31, 2012 is based on
the following assumptions which may or may not prove valid:
a)
A high-teens percentage increase in worldwide net sales (in U.S.
dollars).
b)
Sales assumptions by region (in U.S. dollars) include a high-teens
percentage increase in the Americas, at least a 30% increase in
Asia-Pacific, at least a 20% increase in Europe, and a
high-single-digit percentage increase in Japan. Other sales are
expected to increase approximately 25%.
c)
Opening 17 Company-operated stores including six in the Americas,
three in Europe and eight in Asia-Pacific, and a net reduction of
one location in Japan.
d)
Operating margin increasing more than one full point due to an
improved SG&A expenses (excluding nonrecurring items) to sales ratio
and a higher gross margin.
e)
Interest and other expenses, net of approximately $45 million.
f)
An effective income tax rate of approximately 34%.
g)
A net earnings increase of 25% - 28% to $3.65 - $3.75 per diluted
share (not including nonrecurring expenses), compared with a
previous forecast of $3.45 - $3.55 per diluted share (not including
nonrecurring expenses). Nonrecurring expenses are related to the
relocation of Tiffany's New York headquarters staff and have reduced
net earnings in 2011 by $0.20 per share.
h)
An increase in net inventories of more than 15%.
i)
Capital expenditures of approximately $250 million.
Today's Conference Call:
The Company will host a conference call today at 8:30 a.m. (Eastern
Time) to review these actual results and its outlook. Investors may
listen at http://investor.tiffany.com
("Events and Presentations").
Next Scheduled Announcement:
The Company expects to report its third quarter results on Tuesday
November 29, 2011. To be notified of future announcements, please
register at http://investor.tiffany.com("E-Mail Alerts").
Tiffany & Co. operates jewelry stores and manufactures products through
its subsidiary corporations. Its principal subsidiary is Tiffany and
Company. The Company operates TIFFANY & CO. retail stores and boutiques
in the Americas, Asia-Pacific, Japan and Europe and engages in direct
selling through Internet, catalog and business gift operations. For
additional information, please visit www.tiffany.com
or call our shareholder information line at 800-TIF-0110.
This document contains certain "forward-looking" statements concerning
the Company's objectives and expectations with respect to sales, store
openings, operating margin, interest and other expenses, the effective
income tax rate, net earnings, inventories and capital expenditures.
Actual results might differ materially from those projected in the
forward-looking statements. Information concerning risk factors that
could cause actual results to differ materially is set forth in the
Company'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.
TIFFANY & CO. AND SUBSIDIARIES (Unaudited)
NON-GAAP MEASURES
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.
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 international sales
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:
Second Quarter 2011 vs. 2010
First Half 2011 vs. 2010
GAAP Reported
Translation Effect
Constant- Exchange-Rate Basis
GAAP Reported
Translation Effect
Constant- Exchange-Rate Basis
Net Sales:
Worldwide
30%
6%
24%
25%
5%
20%
Americas
25%
1%
24%
22%
1%
21%
Asia-Pacific
55%
10%
45%
46%
8%
38%
Japan
21%
13%
8%
14%
12%
2%
Europe
32%
15%
17%
28%
10%
18%
Comparable Store Sales:
Worldwide
28%
6%
22%
24%
6%
18%
Americas
24%
1%
23%
21%
1%
20%
Asia-Pacific
51%
10%
41%
41%
8%
33%
Japan
22%
14%
8%
15%
12%
3%
Europe
25%
14%
11%
23%
11%
12%
Net Earnings
The accompanying press release presents net earnings and highlights
current year and prior year nonrecurring items in the text. Management
believes excluding such items presents the Company's second quarter and
year-to-date results on a more comparable basis to the corresponding
period in the prior year, thereby providing investors with an additional
perspective to analyze the results of operations of the Company at July
31, 2011. The following table reconciles GAAP net earnings and net
earnings per diluted share ("EPS") to the non-GAAP net earnings and net
earnings per diluted share, as adjusted:
Three Months Ended
July 31, 2011
Three Months Ended
July 31, 2010
(in thousands, except per share amounts)
$ (after tax)
Diluted EPS
$ (after tax)
Diluted EPS
Net earnings, as reported
$
90,043
$
0.69
$
67,675
$
0.53
Headquarters relocation a
20,991
0.16
2,392
0.02
Net earnings, as adjusted
$
111,034
$
0.86
$
70,067
$
0.55
a
On a pre-tax basis includes charges of $0 and $289,000 within cost
of sales and $34,497,000 and $3,656,000 within SG&A for the
three months ended July 31, 2011 and 2010 associated with Tiffany's
consolidation of its New York headquarters staff within one
location.
Six Months Ended July 31, 2011
Six Months Ended July 31, 2010
(in thousands, except per share amounts)
$ (after tax)
Diluted EPS
$ (after tax)
Diluted EPS
Net earnings, as reported
$
171,106
$
1.32
$
132,100
$
1.03
Headquarters relocation a
25,994
0.20
2,987
0.02
Tax benefit, net b
-
-
(3,096
)
(0.02
)
Net earnings, as adjusted
$
197,100
$
1.52
$
131,991
$
1.03
a
On a pre-tax basis includes charges of $213,000 and $361,000
within cost of sales and $42,506,000 and $4,444,000 within
SG&A for the six months ended July 31, 2011 and 2010 associated
with Tiffany's consolidation of its New York headquarters
staff within one location.
b
Includes $3,096,000 of tax benefits primarily related to a change
in the tax status of certain subsidiaries associated with the
acquisition in 2009 of additional equity interests in diamond
sourcing and polishing operations.
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share amounts)
Three Months Ended July 31,
Six Months Ended July 31,
2011
2010
2011
2010
Net sales
$
872,712
$
668,760
$
1,633,730
$
1,302,346
Cost of sales
358,015
282,008
675,340
549,616
Gross profit
514,697
386,752
958,390
752,730
Selling, general and administrative expenses
374,157
273,146
681,884
533,707
Earnings from operations
140,540
113,606
276,506
219,023
Interest and other expenses, net
9,619
11,121
19,766
23,259
Earnings from operations before income taxes
130,921
102,485
256,740
195,764
Provision for income taxes
40,878
34,810
85,634
63,664
Net earnings
$
90,043
$
67,675
$
171,106
$
132,100
Net earnings per share:
Basic
$
0.70
$
0.53
$
1.34
$
1.04
Diluted
$
0.69
$
0.53
$
1.32
$
1.03
Weighted-average number of common shares:
Basic
128,030
126,897
127,816
126,798
Diluted
129,794
128,385
129,587
128,464
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
July 31,
January 31,
July 31,
2011
2011
2010
ASSETS
Current assets:
Cash and cash equivalents and short-term investments
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