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RAPAPORT... Fitch Ratings assigned an issuer default rating (IDR) of "A-" to Tiffany & Co., as well as an "A-" to the retailer's senior unsecured facilities and senior unsecured notes. The rating outlook is stable. Fitch explained that this rating reflected Tiffany & Co's strong positioning in the mid- to high-tier global luxury jewelry market, supporting mid-single-digit top-line growth, high margins, strong liquidity and reasonable credit metrics.
The ratings agency anticipates that Tiffany & Co. will experience top-line growth of between 6 percent and 6.5 percent and that its EBITDA margin will improve modestly -- from 26 percent (adjusted for any one-time charges) currently -- due to a strong product mix and pricing and some upside from cost efficiencies. Fitch expects top-line growth to be supported by low-single-digit comps in the U.S., Japan and Europe, along with 6 percent to 7 percent comp growth across the Asia-Pacific and about 2.5 percent to 3 percent growth contribution from new stores.
For the 12 months that ended on July 31, Fitch observed that Tiffany & Co. generated $4.2 billion from revenue and $1.1 billion of EBITDA on a base of 293 stores. Tiffany's & Co.'s top-line growth has measured 7.2 percent (compound annual growth rate) for the past five years, supported by an average same-store sales growth rate of 4 percent.
Demand for Tiffany & Co.'s product is expected to be more resilient than the mid-tier category in a recessionary environment, although the category is not recession immune given its discretionary nature, according to Fitch. Another factor supporting Tiffany & Co. is an international presence, whereas regional diversification provides stability and offsets weakness that may appear elsewhere.
Fitch anticipates a global luxury industry compound annual growth rate of 5 percent for the medium term, driven both by unit demand and inflation, and supported by the global wealth effect and tailwinds from the emerging middle class in China and other developing markets.
Tiffany & Co. expects to refinance and increase its existing $550 million unsecured multi-currency credit facilities ($275 million expires in December of both 2014 and 2016), with $750 million (four-year and five-year, $375 million each). Fitch determined that the refinance would further strengthen Tiffany & Co.'s liquidity profile and support the growth in its global operations. Tiffany is also issuing $500 million of 10-year and 30-year unsecured notes to refinance $400 million in aggregate principal amount. After this transaction, Tiffany will have pushed out its debt maturities past 2020 with only $97 million of debt due September 2016, Fitch explained.
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