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Global Economic Challenges Impact Sales at Tiffany & Co.

Mar 20, 2015 9:12 AM   By Jeff Miller
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RAPAPORT... Tiffany & Co.'s sales fell 1 percent year on year to $1.3 billion during the fourth quarter that included the Christmas season and ended on January 31. Same-store sales were flat. Measured on a constant-exchange-rate basis, worldwide sale rose 3 percent due to  growth in Europe and the Asia-Pacific. Profit rose to $196 million, or $1.51 per share, from a loss of $104 million one year ago, which was the result of the company's arbitration  with the Swatch Group. Tiffany & Co. added that without the arbitration charges in 2013, profit would have been $190 million. Gross margin as a percentage of sales rose to 60.8 percent from 60.5 percent one year earlier.

In the Americas, revenue fell 1 percent to $653 million in the fourth quarter, while comparable-store sales were flat. Across the Asia-Pacific region, sales increased 4 percent to $284 million and same-store sales rose 3 percent. Tiffany & Co. noted strong growth in China, Australia and Singapore. Meanwhile, in Japan revenue fell 13 percent to $148 million and comparable-store sales declined 5 percent. In Europe, revenue was flat at $162 million, but same-store sales increased 4 percent.

Frederic Cumenal, the president of Tiffany & Co., said,  "By now, it should be clear that Tiffany & Co. is facing challenges from global economic uncertainties, especially from the effect of a strong U.S. dollar on the translation of foreign-denominated sales into dollars and on foreign tourist spending in the U.S. As a result, we have adopted a cautious approach in our planning for the coming year, anticipating modest growth in net sales and minimal net earnings growth for the full year; this assumes pressure on sales and earnings in the first half of the year followed by healthy growth in the second half. Longer term, we see an exciting future for Tiffany as we pursue important expansion opportunities."

Tiffany & Co.'s plans for this year include adding (net) between  12 and 15 stores, introducing  new jewelry and watch designs, including Tiffany's new CT-60 watch collection, and continuing to invest in new technology systems and strive to effectively deliver an exceptional in-store experience, Cumenal said.

For the full fiscal year, worldwide sales improved 5 percent year on year to $4.25 billion, while comparable-store sales increased 4 percent. On a constant-exchange-rate basis, worldwide revenue rose 7 percent. Profit increased 167 percent to $484 million, or $3.73 per diluted share. Tiffany & Co. had recorded a charge of $473 million in the previous fiscal year due to the Swatch arbitration.

In the Americas, revenue and same-store sales improved 6 percent to $2 billion, while in the Asia-Pacific sales jumped 9 percent to $1 billion as comparable-store sales rose 10 percent. In Japan, revenue fell 4 percent to $554 million but same-store sales rose 1 percent. Across Europe, revenue improved 6 percent to $497 million, but comparable-store sales fell 1 percent.

During the year, Tiffany & Co. opened eight stores and closed two. At the end of the fiscal period, the company operated 295 stores (122 in the Americas, 73 in Asia-Pacific, 56 in Japan, 38 in Europe, five in the United Arab Emirates and one in Russia).

Gross margin as a percentage of sales increased  to 59.7 percent compared with 58.1 percent in 2013. The improvement was attributed  to more favorable product input costs, price increases at the counter and  a favorable shift in product sales mix toward the higher-margin fashion jewelry category. The effective tax rate for the jeweler was 32.9 percent in the fourth quarter and 34.4 percent in the full year.

Tiffany & Co. issued $550 million of long-term debt ($250 million at a 3.8 percent interest rate maturing in 2024 and $300 million at a 4.9 percent interest rate maturing in 2044) during the third quarter of its fiscal year. Proceeds from the issue were primarily applied to redeem $400 million of existing long-term debt and the related prepayment costs. As a result, the company recorded a pre-tax loss of $94 million, or 47 cents per diluted share after-tax, on the extinguishment of such debt in the third quarter.

Cash and cash equivalents and short-term investments totaled $731 million on January 31,  compared with $367 million one year earlier. Total short-term and long-term debt,  as a percentage of stockholder equity, were $1.1 billion and 39 percent, respectively, versus $1 billion and 37 percent one year earlier.

The value of inventory was $2.4 billion as of January 31, representing an increase of 2 percent from one year earlier.  Capital expenditures totaled $247 million in the full year, up from $221 million one year ago and reflected incremental spending for information technology systems and internal manufacturing capacity.

Looking ahead, Tiffany & Co. anticipates low-single-digit percentage increases in sales for the full year, with a very weak first half followed by a stronger second half. Management is forecasting minimal growth in net earnings per diluted share.

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Tags: earnings, economic, Jeff Miller, Jewelry, outlook, prices, revenue, share, Tiffany & CO.
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