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.
Other financial highlights
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.
Mr. Kowalski added, "We will be pursuing important growth opportunities in 2013, with plans including exciting new jewelry collections, enhanced customer communications through print and digital media, and expansion of our global base with additional stores. Tiffany is well positioned to achieve net earnings growth of 6%-9% and healthy free cash flow."
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.
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