Tiffany Reports First Quarter Results; Board Increases Quarterly Dividend by Five Percent

NEW YORK–(BUSINESS WIRE)–Tiffany & Co. (NYSE: TIF) today reported its financial results for the
three months (“first quarter”) ended April 30, 2019. Worldwide net sales
as reported were modestly below the prior year, and were equal to the
prior year on a constant-exchange-rate basis that excludes the effect of
translating foreign-currency-denominated sales into U.S. dollars (see
“Non-GAAP Measures”). Net earnings also reflected a lower operating
margin, as well as the benefit from a lower-than-anticipated effective
income tax rate.

Alessandro Bogliolo, Chief Executive Officer, said, “Our first quarter
results reflect significant foreign exchange headwinds and dramatically
lower worldwide spending attributed to foreign tourists. That said, we
were pleased that, at the core of our business, global sales attributed
to local customers, led by sales in China, grew over last year’s very
strong sales results. We believe this growth in sales to local customers
reflects progress in executing our strategic priorities, including
innovations across products, communications and the customer experience,
and that Tiffany is positioned for improving trends in the second half
of 2019.”

In the first quarter:

  • Worldwide net sales declined 3% to $1.0 billion and comparable sales
    declined 5%; on a constant-exchange-rate basis, net sales were equal
    to the prior year and comparable sales declined 2%. These results
    reflected mixed performance across regions and product categories.
  • Net earnings of $125 million were 12% lower than the prior year’s $142
    million, and net earnings per diluted share were $1.03 versus $1.14 in
    the prior year.

Net sales by region in the first quarter were as
follows:

  • In the Americas, total net sales declined 4% to $406 million, and
    comparable sales declined 5%; on a constant-exchange-rate basis, both
    total net sales and comparable sales declined 4%. Management
    attributed these sales declines largely to lower spending by foreign
    tourists, which represented a continuing negative trend from the
    second half of last year.
  • In Asia-Pacific, total net sales declined 1% to $324 million and
    comparable sales declined 5% due to the effect of foreign currency
    translation; on a constant-exchange-rate basis, total sales rose 3%
    and comparable sales were equal to the prior year. These results
    reflected a continuation of strong growth in mainland China and mixed
    results in other markets. These sales results also reflected lower
    spending attributed to foreign tourists.
  • In Japan, total net sales declined 4% to $145 million and comparable
    sales declined 4%; on a constant-exchange-rate basis, total sales and
    comparable sales were equal to the prior year. These sales results
    were affected by lower spending attributed to foreign tourists.
  • In Europe, total net sales declined 4% to $102 million and comparable
    sales declined 7%; on a constant-exchange-rate basis, total sales and
    comparable sales rose 4% and 1%, respectively. These results reflected
    mixed geographical performance across the region.
  • Other net sales of $26 million were 17% above the prior year, as
    increased wholesale sales of diamonds more than offset a 17% decline
    in comparable sales in our stores in the UAE.
  • Tiffany opened two Company-operated stores in the first quarter,
    closed two stores and relocated two stores. At April 30, 2019, the
    Company operated 321 stores (124 in the Americas, 89 in Asia-Pacific,
    56 in Japan, 47 in Europe and five in the UAE), versus 314 stores a
    year ago (123 in the Americas, 87 in Asia-Pacific, 54 in Japan, 46 in
    Europe and four in the UAE).
  • Sales results by jewelry category in the first quarter were as
    follows: Jewelry Collections rose 1%, Engagement Jewelry declined 6%
    and Designer Jewelry declined 14%; on a constant-exchange-rate basis,
    those categories increased 4%, declined 2% and declined 11%,
    respectively.

Other highlights in the first quarter:

  • Gross margin (gross profit as a percentage of net sales) of 61.7% was
    below the prior year’s 63.0% . The lower margin largely reflected
    sales deleverage on fixed costs, changes in sales mix toward higher
    price point jewelry, and an increase in wholesale sales of diamonds,
    partly offset by lower product related costs.
  • Selling, general and administrative (“SG&A”) expenses increased 3%
    largely due to higher store occupancy and depreciation expenses.
    Changes in foreign currency exchange rates had the effect of
    decreasing SG&A expenses by 2%.
  • The effective income tax rate of 17.3% was below the prior year’s rate
    of 25.3%. The rate in the first quarter of 2019 included the
    recognition of an income tax benefit of $7.5 million, or $0.06 per
    diluted share, related to an increase in the estimated 2018 Foreign
    Derived Intangible Income (“FDII”) benefit as a result of U.S.
    Treasury guidance issued during the first quarter of 2019.
  • The Company repurchased approximately 271,000 shares of its Common
    Stock in the first quarter at a total cost of $25.4 million and an
    average cost of approximately $94 per share. The Company has
    approximately $610 million of authorization remaining to repurchase
    shares under a program that was approved by the Company’s Board of
    Directors in May 2018 for up to $1.0 billion of repurchases and which
    expires in January 2022.
  • Net inventories at April 30, 2019 were 6% above the prior year due to
    a higher level of finished goods inventories, reflecting recent sales
    performance and strategic investments in High Jewelry.
  • At April 30, 2019, cash and cash equivalents and short-term
    investments totaled $763 million. Total debt (short-term borrowings
    and long-term debt) of $1.0 billion represented 32% of stockholders’
    equity, versus 30% a year ago.

Fiscal 2019 Outlook:

Management’s guidance for fiscal 2019 includes: (i) worldwide net sales
increasing by a low-single-digit percentage over the prior year; (ii)
net earnings per diluted share increasing by a low-to-mid-single-digit
percentage; and (iii) a continued expectation for a decline in net
earnings per diluted share in the second quarter of the year, largely
reflecting continuing sales pressures from the effect of lower foreign
tourist spending, difficult comparisons to strong growth in last year’s
second quarter and sales deleverage on fixed costs. These expectations
are approximations and are based on the Company’s plans and assumptions
for the full year, including, to varying degrees: (i) a low-single-digit
increase in comparable sales, with varying results across the regions;
(ii) worldwide gross retail square footage increasing 3%, net through
eight store openings, six closings and 15 relocations; (iii) tariffs
increasing on jewelry that the Company exports from the U.S. to China
from its current levels to a new level of 25% on average; (iv) operating
margin equal to or slightly above the prior year; (v) interest and other
expenses, net lower than the prior year; (vi) an effective income tax
rate in the low-20’s%; (vii) a stronger U.S. dollar on a year-over-year
basis; and (viii) a modest effect on EPS from share repurchases.

Management also expects: (i) net cash provided by operating activities
of at least $750 million and (ii) free cash flow (see “Non-GAAP
Measures”) of at least $400 million. These expectations are
approximations and are based on the Company’s plans and assumptions for
the full year, including: (i) minimal growth in net inventories for the
full year, (ii) capital expenditures of $350 million and (iii) net
earnings in line with management’s expectations, as described above.

Dividend Announcement

The Tiffany & Co. Board of Directors has declared a regular quarterly
dividend of $0.58 per share of Common Stock, representing a 5% increase
in the quarterly rate. This declaration increases the quarterly dividend
from $0.55 per share (or $2.20 annually) to the new rate of $0.58 per
share (or $2.32 annually). The dividend will be paid on July 10, 2019 to
shareholders of record on June 20, 2019. Future dividends are subject to
declaration by the directors.

Mr. Bogliolo said, “Tiffany has the financial strength to invest in
growing its business while also returning capital to shareholders. We
are pleased to announce this 18th dividend increase in the past 17
years.”

Today’s Conference Call:

The Company will conduct a conference call today at 8:30 a.m. (EDT) to
review actual results and the outlook. Please visit https://investor.tiffany.com
(and click on “News & Events/Events & Presentations”).

Next Scheduled Announcement:

The Company expects to report financial results for its second quarter
ending July 31st on August 28, 2019 by issuing a news release
and hosting an accompanying conference call. To receive email alerts of
future announcements, please register at https://investor.tiffany.com
(and click on “Contact Us/Email 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 14,000 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
first 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 2019 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,’ ‘indicates,’ ‘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; the imposition of increased tariffs on jewelry
that the Company exports from the U.S. to China; growth opportunities;
litigation outcomes and recovery related thereto; amounts recovered
under Company insurance policies; 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 transactions, 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, 2019 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 tables reconcile
the sales percentage increases (decreases) from the GAAP to the non-GAAP
basis versus the previous year:

     
First Quarter 2019 vs. 2018

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

Net Sales:

Worldwide (3 )% (3 )% %
Americas (4 ) (4 )
Asia-Pacific (1 ) (4 ) 3
Japan (4 ) (4 )
Europe (4 ) (8 ) 4
Other 17 17
 

Comparable Sales:

Worldwide (5 )% (3 )% (2 )%
Americas (5 ) (1 ) (4 )
Asia-Pacific (5 ) (5 )
Japan (4 ) (4 )
Europe (7 ) (8 ) 1
Other (17 ) (17 )
 

First Quarter 2019 vs. 2018

GAAP
Reported

Translation
Effect

Constant-
Exchange-
Rate Basis

Jewelry sales by product category:

Jewelry collections 1 % (3 )% 4 %
Engagement jewelry (6 ) (4 ) (2 )
Designer jewelry (14 ) (3 ) (11 )
 

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
April 30,

2019   2018
Net sales $ 1,003.1 $ 1,033.2
 
Cost of sales 383.9   382.3
 
Gross profit 619.2 650.9
 
Selling, general and administrative expenses 458.3   446.6
 
Earnings from operations 160.9 204.3
 
Interest and other expenses, net 9.4   13.8
 
Earnings from operations before income taxes 151.5 190.5
 
Provision for income taxes 26.3   48.2
 
Net earnings $ 125.2   $ 142.3
 
Net earnings per share:
 
Basic $ 1.03   $ 1.14
Diluted $ 1.03   $ 1.14
 
Weighted-average number of common shares:
 
Basic 121.4 124.4
Diluted 121.9 125.0
 
 
TIFFANY & CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 

(Unaudited, in millions)

 
    April 30, 2019   January 31, 2019   April 30, 2018

ASSETS

 
Current assets:
Cash and cash equivalents and short-term investments $ 762.7 $ 855.3 $ 1,211.9
Accounts receivable, net 210.5 245.4 227.7
Inventories, net 2,453.8 2,428.0 2,317.6
Prepaid expenses and other current assets 215.8   230.8   223.0
 
Total current assets 3,642.8 3,759.5 3,980.2
 
Operating lease right of use assets 1,066.1
Property, plant and equipment, net 1,019.2 1,026.7 965.6
Other assets, net 547.6   546.8   504.8
 
$ 6,275.7   $ 5,333.0   $ 5,450.6
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 
Current liabilities:
Short-term borrowings $ 142.1 $ 113.4 $ 96.7
Accounts payable and accrued liabilities 392.6 513.4 380.6
Current portion of operating lease liabilities 226.3
Income taxes payable 40.6 21.4 124.3
Merchandise credits and deferred revenue 72.1   69.9   82.7
 
Total current liabilities 873.7 718.1 684.3
 
Long-term debt 881.2 883.4 882.9
Pension/postretirement benefit obligations 284.9 312.4 290.7
Long-term operating lease liabilities 952.1
Other long-term liabilities 111.8 257.1 286.1
Deferred gains on sale-leasebacks 31.1 38.0
Stockholders’ equity 3,172.0   3,130.9   3,268.6
 
$ 6,275.7   $ 5,333.0   $ 5,450.6
 

TIF-E

TIF-D

Contacts

Mark L. Aaron
212-230-5301
[email protected]

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