Tiffany & Co. (NYSE:TIF) reported its financial results for the full year and the three months (“fourth quarter”) ended January 31, 2018. Results were consistent with guidance previously issued when the Company reported its holiday sales results for the November-December period on January 17, 2018. Management further elaborated on its financial guidance for the full year ending January 31, 2019 (“fiscal 2018”).
In the full year:
In the fourth quarter:
Alessandro Bogliolo, Chief Executive Officer, said, “We are pleased to be finishing the year with solid sales growth, both geographically and across product categories. Most important, however, is to generate sustainable growth in sales, margins and earnings over the long-term. Confirming what we recently indicated, we believe that increasing investment now in certain areas, such as technology, marketing communications, visual merchandising, digital and store presentations, which we expect will hinder pre-tax earnings growth in the near-term, is needed to generate that lasting long-term growth. We have assessed our business and are focused on the following six strategic priorities: Amplifying an evolved brand message; Renewing our product offerings and enhancing in-store presentation; Delivering an exciting omnichannel customer experience; Strengthening our competitive position and leading in key markets; Cultivating a more efficient operating model; and Inspiring an aligned and agile organization to win.”
Mr. Bogliolo added, “We will only be truly satisfied when we create greater excitement for our customers and also generate growth that reflects the full potential of our brand. The TIFFANY & CO. brand is strong and we have a very talented, dedicated and passionate team to pursue these strategic priorities and lead us to success. We are committed to nurturing the exceptional legacy we have been entrusted.”
Net sales by region were as follows:
Other highlights:
Fiscal 2018 Outlook:
Management’s guidance for fiscal 2018 includes: (i) worldwide net sales increasing by a mid-single-digit percentage over the prior year both as reported and on a constant-exchange-rate basis; (ii) earnings before income taxes equal to or slightly below the prior year; (iii) net earnings increasing to a range of $4.25 - $4.45 per diluted share and (iv) net earnings and EPS increasing in the first quarter with subsequent quarters’ earnings over the balance of the year affected by the amount and timing of anticipated higher investment spending. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) low-to-mid-single-digit comparable sales growth (which, beginning in 2018, will include Company-operated stores, e-commerce and catalog sales for the periods that are presented), with varying degrees of growth in all regions; (ii) worldwide gross retail square footage increasing 2%, net through nine store openings, two closings and at least 15 relocations; (iii) operating margin below the prior year as a result of SG&A expense growth (affected by higher investment spending in technology, marketing communications, visual merchandising, digital and store presentations) at a higher rate than sales growth, partly offset by a higher gross margin; (iv) interest and other expenses, net in line with the prior year; (v) an effective income tax rate in the high 20’s; (vi) no meaningful effect in fiscal 2018 from the U.S. dollar versus foreign currencies on a year-over-year basis; and (vii) minimal benefit to net earnings per diluted share from share repurchases.
Management also expects: (i) net cash provided by operating activities of $660 million and (ii) free cash flow (see “Non-GAAP Measures”) of $380 million. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) net inventories increasing approximately in line with sales growth, (ii) capital expenditures of $280 million and (iii) net earnings in line with management’s expectations, as described above.
Today’s Conference Call:
The Company will conduct a conference call today at 8:30 a.m. (Eastern Time) to review actual results and the outlook. Please click on http://investor.tiffany.com (“Events and Presentations”).
Next Scheduled Announcement:
The Company expects to report its first quarter results on May 23, 2018. To be notified of future announcements, please register at http://investor.tiffany.com (“E-Mail Alerts”).
Tiffany is the internationally-renowned jeweler founded in New York in 1837. Through its subsidiaries, Tiffany & Co. manufactures products and operates TIFFANY & CO. retail stores worldwide, and also engages in direct selling through Internet, catalog and business gift operations. Please visit www.tiffany.com for additional information.
Forward-Looking Statements:
The historical trends and results reported in this document and on our fourth quarter earnings conference call should not be considered an indication of future performance. Further, statements contained in this document that are not statements of historical fact, including those that refer to plans, assumptions and expectations for the current fiscal year and future periods, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, the statements under “Fiscal 2018 Outlook,” as well as statements that can be identified by the use of words such as ‘expects,’ ‘projects,’ ‘anticipates,’ ‘assumes,’ ‘forecasts,’ ‘plans,’ ‘believes,’ ‘intends,’ ‘estimates,’ ‘pursues,’ ‘scheduled,’ ‘continues,’ ‘outlook,’ ‘may,’ ‘will,’ ‘can,’ ‘should’ and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the Company’s plans, assumptions, expectations, beliefs and objectives with respect to store openings and closings; product introductions; sales; sales growth; sales trends; store traffic; the Company’s strategy and initiatives and the pace of execution thereon; the Company’s objectives to compete in the global luxury market and to improve financial performance; retail prices; gross margin; operating margin; expenses; interest and other expenses, net; effective income tax rate; the nature, amount or scope of charges resulting from recent revisions to the U.S. tax code; net earnings and net earnings per share; share count; inventories; capital expenditures; cash flow; liquidity; currency translation; macroeconomic conditions; growth opportunities; litigation outcomes and recovery related thereto; contributions to Company pension plans; and certain ongoing or planned real estate, product, marketing, retail, customer experience, manufacturing, supply chain, information systems development, upgrades and replacement, and other operational initiatives and strategic priorities.
These forward-looking statements are based upon the current views and plans of management, speak only as of the date on which they are made and are subject to a number of risks and uncertainties, many of which are outside of our control. Actual results could therefore differ materially from the planned, assumed or expected results expressed in, or implied by, these forward-looking statements. While we cannot predict all of the factors that could form the basis of such differences, key factors include, but are not limited to: global macroeconomic and geopolitical developments; changes in interest and foreign currency rates; changes in taxation policies and regulations (including changes effected by the recent revisions to the U.S. tax code) or changes in the guidance related to, or interpretation of, such policies and regulations; shifting tourism trends; regional instability; violence (including terrorist activities); political activities or events; weather conditions that may affect local and tourist consumer spending; changes in consumer confidence, preferences and shopping patterns, as well as our ability to accurately predict and timely respond to such changes; shifts in the Company’s product and geographic sales mix; variations in the cost and availability of diamonds, gemstones and precious metals; adverse publicity regarding the Company and its products, the Company’s third-party vendors or the diamond or jewelry industry more generally; any non-compliance by third-party vendors or suppliers with the Company’s sourcing and quality standards, codes of conduct, or contractual requirements as well as applicable laws and regulations; changes in our competitive landscape; disruptions impacting the Company’s business and operations; failure to successfully implement or make changes to the Company’s information systems; gains or losses in the trading value of the Company’s stock, which may impact the amount of stock repurchased; and the Company’s ability to successfully control costs and execute on, and achieve the expected benefits from, the operational initiatives and strategic priorities. Developments relating to these and other factors may also warrant changes to the Company’s operating and strategic plans, including with respect to store openings, closings and renovations, capital expenditures, information systems development, inventory management, and continuing execution on, or timing of, the aforementioned initiatives and priorities. Such changes could also cause actual results to differ materially from the expected results expressed in, or implied by, the forward-looking statements.
Additional information about potential risks and uncertainties that could affect the Company’s business and financial results is included under “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2018. Readers of these documents should consider the risks, uncertainties and factors outlined above and in the Form 10-K in evaluating, and are cautioned not to place undue reliance on, the forward-looking statements contained herein. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by applicable law or regulation.
TIFFANY & CO. AND SUBSIDIARIES
(Unaudited)
NON-GAAP MEASURES
The Company reports information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management also monitors and measures its performance using certain sales and earnings measures that include or exclude amounts, or are subject to adjustments that have the effect of including or excluding amounts, from the most directly comparable GAAP measure (“non-GAAP financial measures”). The Company presents such non-GAAP financial measures in reporting its financial results to provide investors with useful supplemental information that will allow them to evaluate the Company's operating results using the same measures that management uses to monitor and measure its performance. 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. These non-GAAP financial measures presented here may not be comparable to similarly-titled measures used by other companies.
Net Sales
The Company's reported net sales reflect either a translation-related benefit from strengthening foreign currencies or a detriment from a strengthening U.S. dollar. Internally, management monitors and measures 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”). Sales on a constant-exchange-rate basis are calculated by taking the current year’s sales in local currencies and translating them into U.S. dollars using the prior year’s foreign currency exchange rates. Management believes this constant-exchange-rate basis provides a useful supplemental basis for the assessment of sales performance and of comparability between reporting periods. The following table reconciles the sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year:
Fourth Quarter 2017 vs. 2016 | Full Year 2017 vs. 2016 | ||||||||||||||||||
GAAP |
Translation |
Constant- |
GAAP |
Translation |
Constant- |
||||||||||||||
Net Sales: |
|||||||||||||||||||
Worldwide | 9 | % | 3 | % | 6 | % | 4 | % | — | % | 4 | % | |||||||
Americas | 5 | — | 5 | 2 | 1 | 1 | |||||||||||||
Asia-Pacific | 13 | 4 | 9 | 10 | 2 | 8 | |||||||||||||
Japan | 2 | 1 | 1 | (1 | ) | (2 | ) | 1 | |||||||||||
Europe | 13 | 9 | 4 | 6 | 3 | 3 | |||||||||||||
Other | 48 | — | 48 | 26 | — | 26 | |||||||||||||
Comparable Store Sales: |
|||||||||||||||||||
Worldwide | 3 | % | 2 | % | 1 | % | — | % | — | % | — | % | |||||||
Americas | 5 | 1 | 4 | 1 | 1 | — | |||||||||||||
Asia-Pacific | 3 | 4 | (1 | ) | (1 | ) | 1 | (2 | ) | ||||||||||
Japan | 1 | 1 | — | (1 | ) | (3 | ) | 2 | |||||||||||
Europe | 1 | 9 | (8 | ) | (2 | ) | 2 | (4 | ) | ||||||||||
Other | 6 | — | 6 | 2 | — | 2 | |||||||||||||
Net Earnings
Internally, management monitors and measures its earnings performance excluding certain items listed below. Management believes excluding such items provides a useful supplemental basis for the assessment of the Company's results relative to the corresponding period in the prior year. The following tables reconcile certain GAAP amounts to non-GAAP amounts:
(in millions, except per share amounts) | GAAP |
Charges related |
Non-GAAP | ||||||||||
Quarter Ended January 31, 2018 | |||||||||||||
Provision for income taxes | $ | 239.5 | $ | (146.2 | ) | $ | 93.3 | ||||||
Effective income tax rate | 79.4 | % | (48.5 | )% | 30.9 | % | |||||||
Net earnings | 61.9 | 146.2 | 208.1 | ||||||||||
Diluted earnings per share | 0.50 | 1.17 | 1.67 | ||||||||||
Year Ended January 31, 2018 | |||||||||||||
Provision for income taxes | $ | 390.4 | $ | (146.2 | ) | $ | 244.2 | ||||||
Effective income tax rate | 51.3 | % | (19.2 | )% | 32.1 | % | |||||||
Net earnings | 370.1 | 146.2 | 516.3 | ||||||||||
Diluted earnings per share | 2.96 | 1.17 | 4.13 |
a |
Net expense recognized in 2017 related to the estimated impact of the U.S. Tax Cuts and Jobs Act (“2017 Tax Act”). The charges recorded included: |
(in millions, except per share amounts) | GAAP |
Impairment |
Non-GAAP | ||||||||||
Quarter Ended January 31, 2017 | |||||||||||||
Selling, general and administrative (“SG&A”) expenses | $ | 531.7 | $ | (38.0 | ) | $ | 493.7 | ||||||
As a % of sales | 43.2 | % | 40.1 | % | |||||||||
Earnings from operations | 256.5 | 38.0 | 294.5 | ||||||||||
As a % of sales | 20.9 | % | 23.9 | % | |||||||||
Provision for income taxes c | 88.7 | 14.0 | 102.7 | ||||||||||
Net earnings | 157.8 | 24.0 | 181.8 | ||||||||||
Diluted earnings per share * | 1.26 | 0.19 | 1.45 | ||||||||||
Year Ended January 31, 2017 | |||||||||||||
SG&A expenses | $ | 1,769.1 | $ | (38.0 | ) | $ | 1,731.1 | ||||||
As a % of sales | 44.2 | % | 43.3 | % | |||||||||
Earnings from operations | 721.2 | 38.0 | 759.2 | ||||||||||
As a % of sales | 18.0 | % | 19.0 | % | |||||||||
Provision for income taxes c | 230.5 | 14.0 | 244.5 | ||||||||||
Net earnings | 446.1 | 24.0 | 470.1 | ||||||||||
Diluted earnings per share * | 3.55 | 0.19 | 3.75 | ||||||||||
* |
Amounts may not add due to rounding. |
|
b |
Expenses associated with the following: |
c | The income tax effect resulting from the adjustments has been calculated as both current and deferred tax benefit (expense), based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying adjustment. | |
Free Cash Flow
Internally, management monitors its cash flow on a non-GAAP basis. Free cash flow is calculated by deducting capital expenditures from net cash provided by operating activities. The ability to generate free cash flow demonstrates how much cash the Company has available for discretionary and non-discretionary purposes after deduction of capital expenditures. The Company's operations require regular capital expenditures for the opening, renovation and expansion of stores and distribution and manufacturing facilities as well as ongoing investments in information technology. Management believes this provides a useful supplemental basis for assessing the Company’s operating cash flows. The following table reconciles GAAP net cash provided by operating activities to non-GAAP free cash flow:
Years Ended January 31, | |||||||||||||||||||||
(in millions) | 2018 | 2017 | |||||||||||||||||||
Net cash provided by operating activities | $ | 932.2 | $ | 705.7 | |||||||||||||||||
Less: Capital expenditures | (239.3 | ) | (222.8 | ) | |||||||||||||||||
Free cash flow a | $ | 692.9 | $ | 482.9 |
a | Increases in net cash provided by operating activities and free cash flow in 2017 reflected more effective management and timing of payables and reduced payments for income taxes partly offset by increased inventory purchases. Additionally, net cash provided by operating activities and free cash flow in 2017 and 2016 included voluntary cash contributions of $15.0 million and $120.0 million, respectively, made by the Company to its U.S. pension plan. | |
TIFFANY & CO. AND SUBSIDIARIES |
|||||||||||||
Three Months Ended |
Years Ended January 31, | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
Net sales | $ | 1,334.3 | $ | 1,229.6 | $ | 4,169.8 | $ | 4,001.8 | |||||
Cost of sales | 483.7 | 441.4 | 1,565.1 | 1,511.5 | |||||||||
Gross profit | 850.6 | 788.2 | 2,604.7 | 2,490.3 | |||||||||
Selling, general and administrative expenses | 543.4 | 531.7 | 1,810.2 | 1,769.1 | |||||||||
Earnings from operations | 307.2 | 256.5 | 794.5 | 721.2 | |||||||||
Interest and other expenses, net | 5.8 | 10.0 | 34.0 | 44.6 | |||||||||
Earnings from operations before income taxes | 301.4 | 246.5 | 760.5 | 676.6 | |||||||||
Provision for income taxes | 239.5 | 88.7 | 390.4 | 230.5 | |||||||||
Net earnings | $ | 61.9 | $ | 157.8 | $ | 370.1 | $ | 446.1 | |||||
Net earnings per share: | |||||||||||||
Basic | $ | 0.50 | $ | 1.27 | $ | 2.97 | $ | 3.57 | |||||
Diluted | $ | 0.50 | $ | 1.26 | $ | 2.96 | $ | 3.55 | |||||
Weighted-average number of common shares: | |||||||||||||
Basic | 124.2 | 124.5 | 124.5 | 125.1 | |||||||||
Diluted | 124.9 | 125.0 | 125.1 | 125.5 | |||||||||
TIFFANY & CO. AND SUBSIDIARIES |
|||||||
January 31, 2018 | January 31, 2017 | ||||||
ASSETS |
|||||||
Current assets: | |||||||
Cash and cash equivalents and short-term investments | $ | 1,291.2 | $ | 985.8 | |||
Accounts receivable, net | 231.2 | 226.8 | |||||
Inventories, net | 2,253.5 | 2,157.6 | |||||
Prepaid expenses and other current assets | 207.4 | 203.4 | |||||
Total current assets | 3,983.3 | 3,573.6 | |||||
Property, plant and equipment, net | 990.5 | 931.8 | |||||
Other assets, net | 494.3 | 592.2 | |||||
$ | 5,468.1 | $ | 5,097.6 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||
Current liabilities: | |||||||
Short-term borrowings | $ | 120.6 | $ | 228.7 | |||
Accounts payable and accrued liabilities | 437.4 | 312.8 | |||||
Income taxes payable | 89.4 | 22.1 | |||||
Merchandise credits and deferred revenue | 77.4 | 69.2 | |||||
Total current liabilities | 724.8 | 632.8 | |||||
Long-term debt | 882.9 | 878.4 | |||||
Pension/postretirement benefit obligations | 287.4 | 318.6 | |||||
Other long-term liabilities | 284.3 | 193.5 | |||||
Deferred gains on sale-leasebacks | 40.5 | 45.9 | |||||
Stockholders’ equity | 3,248.2 | 3,028.4 | |||||
$ | 5,468.1 | $ | 5,097.6 |
TIF-E
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Tiffany & Co.
Mark L. Aaron, 212-230-5301
[email protected]