Tiffany & Co. (NYSE:TIF) today reported its financial results for the three months (“second quarter”) and six months (“first half”) ended July 31, 2018. Higher earnings in both periods resulted from broad-based growth in worldwide sales, increases in gross margin and lower effective tax rates, partly offset by higher investment spending. These better-than-expected results led management to increase its net earnings outlook for the full year ending January 31, 2019 (“fiscal 2018”).
In the second quarter:
In the first half:
Alessandro Bogliolo, Chief Executive Officer, said, “While in the early stages of addressing our six key strategic priorities, we are pleased with initial customer reactions to our new communication, product and in-store initiatives. The launch of PAPER FLOWERS, a floral collection in platinum and diamonds, is moving toward full global distribution and we believe our evolved brand message is gaining momentum. Our activities in these areas will further accelerate in the remainder of the year with special focus on product personalization, high jewelry, a whimsical holiday campaign and the unveiling in North America of TIFFANY TRUE, an innovative diamond ring concept.”
He added, “We are pleased with our sales and earnings growth and the strength and breadth of the results in the first half of 2018, but it’s worth noting that strategic investment spending is increasing for the remainder of the year, as expected, which is intended to support longer-term sustainable growth. Regarding that longer-term horizon, we are very excited to embark on our recently announced transformative multi-year remodeling of the New York City flagship building. We believe that the thoughtful combination of making short- and long-range strategic investments is necessary to achieve the full growth potential of this legendary brand.”
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 high-single-digit percentage over the prior year both as reported and on a constant-exchange-rate basis; (ii) net earnings increasing to a range of $4.65 - $4.80 per diluted share (from a previous range of $4.50 - $4.70 per diluted share); and (iii) net earnings and earnings per share (“EPS”) in the third quarter expected to be below the prior year. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) mid-to-high-single-digit comparable sales growth, with varying degrees of growth in all regions; (ii) worldwide gross retail square footage increasing 2%, net through eight store openings, two closings and at least 15 relocations; (iii) operating margin below the prior year as a result of significant SG&A expense growth (affected by anticipated higher investment spending in technology, marketing communications, visual merchandising, digital and store presentations, as well as expenses related to the renovation of the Company’s New York City flagship store) at a higher rate than sales growth for the remainder of the year, 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 mid-20’s; (vi) net earnings and EPS over the balance of the year affected by the amount and timing of the anticipated higher investment spending; (vii) the U.S. dollar in the second half of the year stronger on a year-over-year basis; and (viii) EPS benefitting from share repurchases which are expected to total approximately $400 million for the full year.
Management also expects: (i) net cash provided by operating activities of approximately $600 million and (ii) free cash flow (see “Non-GAAP Measures”) of at least $300 million. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) net inventories increasing at or below the rate of 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 third quarter results on November 28, 2018. To be notified of future announcements, please register at http://investor.tiffany.com (“E-Mail Alerts”).
About Tiffany & Co.:
In 1837 Charles Lewis Tiffany founded his company in New York City where his store was soon acclaimed as the palace of jewels for its exceptional gemstones. Since then TIFFANY & CO. has become synonymous with elegance, innovative design, fine craftsmanship and creative excellence. During the 20th century fame thrived worldwide with store network expansion and continuous cultural relevance, as exemplified by Truman Capote’s Breakfast at Tiffany’s and the film starring Audrey Hepburn.
Today, with more than 13,000 employees, TIFFANY & CO. and its subsidiaries design, manufacture and market jewelry, watches and luxury accessories – including more than 5,000 skilled artisans who cut diamonds and craft jewelry in the Company’s workshops, realizing its commitment to superlative quality. The Company operates more than 300 TIFFANY & CO. retail stores worldwide as part of its omnichannel approach. To learn more about TIFFANY & CO. as well as its commitment to sustainability, please visit tiffany.com.
Forward-Looking Statements:
The historical trends and results reported in this document and on our second quarter earnings conference call should not be considered an indication of future performance. Further, statements contained in this document and made on such call 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; store productivity; the renovation of the Company’s New York City flagship store, including the timing and cost thereof, and the temporary expansion of its retail operations to 6 East 57th Street; product introductions; sales; sales growth; sales trends; store traffic; the Company’s strategy and initiatives and the pace of execution thereon; the amount and timing of investment spending; 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 and geopolitical 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 (including the potential for rapid and unexpected changes in government, economic and political policies, the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade, including as a result of changes in diplomatic and trade relations or agreements with other countries); 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 through open market transactions, including through Rule 10b5-1 plans and accelerated share repurchase or other structured repurchase transaction, and/or privately negotiated transactions; the Company’s receipt of any required approvals to the aforementioned renovation of its New York City flagship store and expansion of its retail operations to 6 East 57th Street, as well as the timing of such approvals; changes in the cost and timing estimates associated with the aforementioned renovation and expansion; delays caused by third parties involved in the aforementioned renovation and expansion; any casualty, damage or destruction to the Company’s flagship store or 6 East 57th Street; and the Company’s ability to successfully control costs and execute on, and achieve the expected benefits from, the operational initiatives and strategic priorities referenced above. 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 in “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 and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent quarterly report on Form 10-Q. Readers of these documents should consider the risks, uncertainties and factors outlined above and in the Form 10-K and Form 10-Q 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:
Second Quarter 2018 vs. 2017 | First Half 2018 vs. 2017 | |||||||||||||||||||
GAAP |
Translation |
Constant- |
GAAP Reported |
Translation Effect |
Constant- Exchange- Rate Basis |
|||||||||||||||
Net Sales: |
||||||||||||||||||||
Worldwide | 12 | % | 1 | % | 11 | % | 13 | % | 2 | % | 11 | % | ||||||||
Americas | 8 | — | 8 | 8 |
— |
8 | ||||||||||||||
Asia-Pacific | 28 | 2 | 26 | 28 | 4 | 24 | ||||||||||||||
Japan | 11 | 2 | 9 | 14 | 3 | 11 | ||||||||||||||
Europe | 5 | 3 | 2 | 9 | 7 | 2 | ||||||||||||||
Other | (21 | ) | — | (21 | ) | (21 | ) | — | (21 | ) | ||||||||||
Comparable Sales: |
||||||||||||||||||||
Worldwide | 8 | % | 1 | % | 7 | % | 9 | % | 2 | % | 7 | % | ||||||||
Americas | 8 | — | 8 | 9 | — | 9 | ||||||||||||||
Asia-Pacific | 12 | 2 | 10 | 13 | 4 | 9 | ||||||||||||||
Japan | 9 | 1 | 8 | 12 | 3 | 9 | ||||||||||||||
Europe | (1 | ) | 3 | (4 | ) | 1 | 7 | (6 | ) | |||||||||||
Other | 5 | — | 5 | (2 | ) | — | (2 | ) | ||||||||||||
Beginning in the first quarter of 2018, the Company revised its definition of comparable sales to include e-commerce and catalog sales, in addition to sales transacted in Company-operated stores open for more than 12 months. For reference purposes, the following tables reconcile the comparable sales percentage increases (decreases) from the GAAP to the non-GAAP basis versus the previous year for the second quarter and first half of 2017:
Second Quarter 2017 vs. 2016 As Revised |
Second Quarter 2017 vs. 2016 As Previously Reported |
|||||||||||||||||||
GAAP Reported |
Translation Effect |
Constant- Exchange- Rate Basis |
GAAP Reported |
Translation Effect |
Constant- Exchange- Rate Basis |
|||||||||||||||
Comparable Sales: |
||||||||||||||||||||
Worldwide | (1 | )% | (1 | )% | — | % | (2 | )% | (1 | )% | (1 | )% | ||||||||
Americas | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||
Asia-Pacific | (7 | ) | — | (7 | ) | (7 | ) | — | (7 | ) | ||||||||||
Japan | 3 | (6 | ) | 9 | 3 | (6 | ) | 9 | ||||||||||||
Europe | (1 | ) | (2 | ) | 1 | (2 | ) | (2 | ) | — | ||||||||||
Other | (8 | ) | — | (8 | ) | (8 | ) | — | (8 | ) | ||||||||||
First Half 2017 vs. 2016 As Revised |
First Half 2017 vs. 2016 As Previously Reported |
|||||||||||||||||||
GAAP Reported |
Translation Effect |
Constant- Exchange- Rate Basis |
GAAP Reported |
Translation Effect |
Constant- Exchange- Rate Basis |
|||||||||||||||
Comparable Sales: |
||||||||||||||||||||
Worldwide | (2 | )% | (1 | )% | (1 | )% | (2 | )% | (1 | )% | (1 | )% | ||||||||
Americas | (2 | ) | — | (2 | ) | (2 | ) | — | (2 | ) | ||||||||||
Asia-Pacific | (5 | ) | (1 | ) | (4 | ) | (5 | ) | (1 | ) | (4 | ) | ||||||||
Japan | 1 | (3 | ) | 4 | 1 | (3 | ) | 4 | ||||||||||||
Europe | (2 | ) | (4 | ) | 2 | (2 | ) | (3 | ) | 1 | ||||||||||
Other | (3 | ) | — | (3 | ) | (3 | ) | — | (3 | ) | ||||||||||
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.
TIFFANY & CO. AND SUBSIDIARIES | |||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | |||||||||||||||||
(Unaudited, in millions, except per share amounts) |
|||||||||||||||||
Three Months Ended |
Six Months Ended July 31, |
||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Net sales | $ | 1,075.9 | $ | 959.7 | $ | 2,109.1 | $ | 1,859.3 | |||||||||
Cost of sales | 387.1 | 360.1 | 769.4 | 700.6 | |||||||||||||
Gross profit | 688.8 | 599.6 | 1,339.7 | 1,158.7 | |||||||||||||
Selling, general and administrative expenses | 497.6 | 414.9 | 944.2 | 824.3 | |||||||||||||
Earnings from operations | 191.2 | 184.7 | 395.5 | 334.4 | |||||||||||||
Interest and other expenses, net | 9.2 | 12.2 | 23.0 | 25.7 | |||||||||||||
Earnings from operations before income taxes | 182.0 | 172.5 | 372.5 | 308.7 | |||||||||||||
Provision for income taxes | 37.3 | 57.5 | 85.5 | 100.8 | |||||||||||||
Net earnings | $ | 144.7 | $ | 115.0 | $ | 287.0 | $ | 207.9 | |||||||||
Net earnings per share: | |||||||||||||||||
Basic | $ | 1.17 | $ | 0.92 | $ | 2.32 | $ | 1.67 | |||||||||
Diluted | $ | 1.17 | $ | 0.92 | $ | 2.31 | $ | 1.66 | |||||||||
Weighted-average number of common shares: | |||||||||||||||||
Basic | 123.2 | 124.5 | 123.8 | 124.6 | |||||||||||||
Diluted | 124.0 | 125.1 | 124.5 | 125.2 | |||||||||||||
TIFFANY & CO. AND SUBSIDIARIES | |||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||||
(Unaudited, in millions) |
|||||||||||||
July 31, 2018 | January 31, 2018 | July 31, 2017 | |||||||||||
ASSETS |
|||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents and short-term investments | $ | 814.1 | $ | 1,291.2 | $ | 1,043.5 | |||||||
Accounts receivable, net | 207.0 | 231.2 | 223.3 | ||||||||||
Inventories, net | 2,411.8 | 2,253.5 | 2,236.9 | ||||||||||
Prepaid expenses and other current assets | 256.4 | 207.4 | 218.3 | ||||||||||
Total current assets | 3,689.3 | 3,983.3 | 3,722.0 | ||||||||||
Property, plant and equipment, net | 970.5 | 990.5 | 939.6 | ||||||||||
Other assets, net | 510.4 | 494.3 | 608.0 | ||||||||||
$ | 5,170.2 | $ | 5,468.1 | $ | 5,269.6 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||
Current liabilities: | |||||||||||||
Short-term borrowings | $ | 90.3 | $ | 120.6 | $ | 235.0 | |||||||
Accounts payable and accrued liabilities | 428.4 | 437.4 | 301.4 | ||||||||||
Income taxes payable | 24.3 | 89.4 | 32.8 | ||||||||||
Merchandise credits and deferred revenue | 67.3 | 77.4 | 78.6 | ||||||||||
Total current liabilities | 610.3 | 724.8 | 647.8 | ||||||||||
Long-term debt | 881.4 | 882.9 | 881.1 | ||||||||||
Pension/postretirement benefit obligations | 293.5 | 287.4 | 326.1 | ||||||||||
Other long-term liabilities | 278.6 | 284.3 | 213.3 | ||||||||||
Deferred gains on sale-leasebacks | 34.9 | 40.5 | 43.3 | ||||||||||
Stockholders’ equity | 3,071.5 | 3,248.2 | 3,158.0 | ||||||||||
$ | 5,170.2 | $ | 5,468.1 | $ | 5,269.6 | ||||||||
TIF-E
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Tiffany & Co.
Mark L. Aaron, 212-230-5301
[email protected]