News Column

Tiffany Reports First Quarter Results; Higher Sales and Margins Generate Strong Earnings Growth

June 3, 2014



By a News Reporter-Staff News Editor at China Weekly News -- Tiffany & Co. (NYSE:TIF) reported its financial results for the three months ("first quarter") ended April 30, 2014. A 13% increase in worldwide net sales, combined with an improved operating margin, resulted in 50% growth in net earnings. Management also increased its earnings forecast for the current fiscal year.

Michael J. Kowalski, chairman and chief executive officer, said, "This is an excellent and encouraging start to the year. We were pleased with the strong and broad-based sales growth across most regions and product categories and our ability to leverage those improved sales into very significant growth in operating and net earnings. Strength in fine and statement jewelry sales continued, while sales of our new or expanded jewelry collections accelerated, led by our ATLAS collection." First quarter overview: Worldwide net sales rose 13% to $1.0 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"), worldwide net sales rose 15% and comparable store sales rose 11% due to growth in most regions.

Net earnings increased 50% to $126 million, or $0.97 per diluted share, up from $84 million, or $0.65 per diluted share, in last year's first quarter when pre-tax expenses of $9 million, or $0.05 per diluted share, were recorded for staff and occupancy reductions (see "Non-GAAP Measures"). Excluding those expenses, net earnings rose 41%. Net sales highlights were as follows: In the Americas region, total sales increased 8% to $439 million. On a constant-exchange-rate basis, total sales rose 9% and comparable store sales rose 8%, primarily due to geographically broad-based growth across the U.S.

In the Asia-Pacific region, total sales rose 17% to $261 million. On a constant-exchange-rate basis, total sales increased 19% and comparable store sales rose 10% with noteworthy growth throughout Greater China and in Australia.

In Japan, total sales surged 20% to $174 million. On a constant-exchange-rate basis eliminating the negative effect of a weaker yen versus the U.S. dollar, total sales and comparable store sales rose 29% and 30%. Management noted exceptionally strong customer demand in March, which reflected the Japanese consumer's response to the long-anticipated increase in Japan's consumption tax which took effect on April 1st. After the tax increase became effective, as expected the Company has experienced sales declines but management is not changing its initial full-year expectation for a healthy rate of sales growth.

In Europe, total sales rose 9% to $101 million. On a constant-exchange-rate basis, total sales rose 2% and comparable store sales declined 3%. Trends were similar in the U.K. and in continental Europe.

Other sales increased 39% to $37 million, primarily due to retail sales growth which included 18% comparable store sales growth in the United Arab Emirates and the opening of the first Company-operated TIFFANY & CO. store in Russia. Other sales also benefited from an increase in wholesale sales of diamonds; such diamonds are a result of the Company's rough diamond sourcing operations.

Tiffany opened four stores in the first quarter (including a major store on the Champs Elysees in Paris) and closed one in the U.S. At April 30, 2014, the Company operated 292 stores (121 in the Americas, 72 in Asia-Pacific, 55 in Japan, 38 in Europe, five in the U.A.E. and one in Russia), versus 275 stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and five in the U.A.E.) a year ago. Other financial highlights: Gross margin (gross profit as a percentage of net sales) was 58.2% in the first quarter, compared with 56.2% last year. The increase reflects favorable product costs and price increases across all product categories and regions, as well as sales leverage on fixed costs resulting from the strong increase in worldwide net sales.

SG&A (selling, general and administrative) expenses increased 5% in the first quarter. Excluding $9 million of staff and occupancy reduction expenses recorded in last year's first quarter, SG&A expenses were 8% above last year, largely reflecting higher store-related expenses and labor costs.

The operating margin improved to 20.7%, driven by the higher gross margin and sales leverage on fixed SG&A expenses.

Interest and other expenses, net were $16 million in the first quarter, compared with $13 million last year.

The effective tax rate was 35.1% in the first quarter versus 34.9% last year.

Cash and cash equivalents and short-term investments were $381 million at April 30, 2014 versus $465 million a year ago. Short-term and long-term debt totaled $992 million at April 30, 2014 versus $974 million a year ago, and represented 35% of stockholders' equity, versus 37% a year ago.

Net inventories of $2.4 billion at April 30, 2014 were 6% above last year largely to support anticipated sales growth.

Capital expenditures of $35 million were unchanged from the prior year's first quarter.

Keywords for this news article include: Asia, China, Japan, Tiffany & Co.

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Source: China Weekly News


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