Tiffany Reports Second Quarter Results

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Overig advies 28/08/2018 14:17
- Worldwide Sales Rise 12% and Net Earnings up 26%;
- Company Repurchases $266 Million of Stock in the Quarter;
- Management Increases Full Year Earnings Outlook

NEW YORK--(BUSINESS WIRE)--Aug. 28, 2018-- Tiffany & Co. (NYSE:TIF) today reported its financial results for the three months (“second quarter”) and six months (“first half”) ended July 31, 2018. Higher earnings in both periods resulted from broad-based growth in worldwide sales, increases in gross margin and lower effective tax rates, partly offset by higher investment spending. These better-than-expected results led management to increase its net earnings outlook for the full year ending January 31, 2019 (“fiscal 2018”).

In the second quarter:
•Worldwide net sales rose 12% to $1.1 billion, reflecting geographically broad-based growth and increases in all product categories; comparable sales rose 8%. 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 11% and comparable sales rose 7%.
•Net earnings rose 26% to $145 million, or $1.17 per diluted share, from $115 million, or $0.92 per diluted share, a year ago.

In the first half:
•Worldwide net sales increased 13% to $2.1 billion, due to geographically broad-based growth and increases in all product categories; comparable sales increased 9%. On a constant-exchange-rate basis, worldwide net sales and comparable sales rose 11% and 7%, respectively.
•Net earnings increased 38% to $287 million, or $2.31 per diluted share, from $208 million, or $1.66 per diluted share, a year ago.

Alessandro Bogliolo, Chief Executive Officer, said, “While in the early stages of addressing our six key strategic priorities, we are pleased with initial customer reactions to our new communication, product and in-store initiatives. The launch of PAPER FLOWERS, a floral collection in platinum and diamonds, is moving toward full global distribution and we believe our evolved brand message is gaining momentum. Our activities in these areas will further accelerate in the remainder of the year with special focus on product personalization, high jewelry, a whimsical holiday campaign and the unveiling in North America of TIFFANY TRUE, an innovative diamond ring concept.”

He added, “We are pleased with our sales and earnings growth and the strength and breadth of the results in the first half of 2018, but it’s worth noting that strategic investment spending is increasing for the remainder of the year, as expected, which is intended to support longer-term sustainable growth. Regarding that longer-term horizon, we are very excited to embark on our recently announced transformative multi-year remodeling of the New York City flagship building. We believe that the thoughtful combination of making short- and long-range strategic investments is necessary to achieve the full growth potential of this legendary brand.”

Net sales by region were as follows:
•In the Americas, total net sales rose 8% to $475 million in the second quarter and 8% to $900 million in the first half; comparable sales rose 8% and 9%, respectively. Sales increased across most of the region, and management attributed that growth primarily to higher spending by local customers. On a constant-exchange-rate basis, total sales rose 8% in both the second quarter and first half, and comparable sales rose 8% and 9%, respectively.
•In Asia-Pacific, total net sales increased 28% to $301 million in the second quarter and 28% to $629 million in the first half, which included comparable sales growth of 12% in the second quarter and 13% in the first half, and also reflected the opening of new stores and increased wholesale sales. Management attributed the sales growth across Greater China and most other markets in the region largely to higher spending by local customers and, to a lesser extent, spending by foreign tourists. On a constant-exchange-rate basis, total sales rose 26% in the second quarter and 24% in the first half, and comparable sales increased 10% and 9%, respectively.
•In Japan, total net sales increased 11% to $155 million in the second quarter and 14% to $305 million in the first half, and comparable sales rose 9% and 12%, respectively. Management attributed the majority of sales growth to higher spending by local customers. On a constant-exchange-rate basis, total sales rose 9% in the second quarter and 11% in the first half, and comparable sales rose 8% and 9%, respectively.
•In Europe, total net sales rose 5% to $121 million in the second quarter and 9% to $228 million in the first half, reflecting the positive effects from currency translation, as well as sales in new stores, and comparable sales declined 1% and rose 1%, respectively. On a constant-exchange-rate basis, total sales rose 2% in both the second quarter and first half; comparable sales declined 4% and 6%, respectively. Sales results were negatively affected in both the second quarter and first half by broad-based regional softness, which management attributed to lower spending by foreign tourists; comparable sales were also affected by negative effects from new stores on existing store sales.
•Other net sales declined 21% in both the second quarter and first half to $24 million and $46 million, respectively, primarily due to a reduction in wholesale sales of diamonds. Comparable sales rose 5% in the second quarter and declined 2% in the first half.
•Tiffany has opened seven Company-operated stores in the first half and closed two. At July 31, 2018, the Company operated 320 stores (123 in the Americas, 90 in Asia-Pacific, 54 in Japan, 48 in Europe, and five in the UAE), versus 312 stores a year ago (124 in the Americas, 85 in Asia-Pacific, 54 in Japan, 44 in Europe, and five in the UAE).
•Sales increased in all jewelry categories: Jewelry Collections, Engagement Jewelry and Designer Jewelry sales in the second quarter rose 18%, 8% and 5%, respectively, and in the first half rose 18%, 10% and 8%, respectively. Sales also rose in watches and in other non-jewelry categories.

Other highlights:
•Gross margin (gross profit as a percentage of net sales) increased to 64.0% in the second quarter and 63.5% in the first half, compared with 62.5% and 62.3% in the respective prior-year periods. The increases largely reflected lower wholesale sales of diamonds, favorable product input costs and sales leverage on fixed costs, partly offset by increased investment spending.
•Selling, general and administrative (“SG&A”) expenses increased 20% in the second quarter and 15% in the first half. The growth in the second quarter was partly due to increased marketing spending, as expected, while growth in both periods also included higher labor and incentive compensation, store occupancy and depreciation expenses. In addition to marketing, the Company also increased its spending in the areas of technology, visual merchandising, digital and store presentations. Management believes this increased investment spending, which is expected to continue for the remainder of the year, is necessary to generate long-term growth.
•Earnings from operations as a percentage of net sales (“operating margin”) was 17.8% in the second quarter and 18.8% in the first half, compared with 19.3% and 18.0% in the respective prior-year periods.
•The effective income tax rate was 20.5% in the second quarter and 23.0% in the first half, compared with 33.3% and 32.6% in the respective prior-year periods. The declines in both periods largely reflected the recognition of an income tax benefit from the release of tax reserves due to a lapse in a statute of limitations during the second quarter and the enactment in December 2017 of the U.S. Tax Cuts and Jobs Act.
•In May 2018, the Company’s Board of Directors approved a new share repurchase program (which replaced the Company’s previous program) authorizing the repurchase of up to $1.0 billion of the Company’s Common Stock through open market transactions, including through Rule 10b5-1 plans and one or more accelerated share repurchase or other structured repurchase transactions, and/or privately negotiated transactions. Under this new program, the Company’s Board of Directors also approved the repurchase of $250 million of the Company’s Common Stock through an accelerated share repurchase transaction, which the Company completed during the second quarter. The Company also spent $16 million and $56 million in the second quarter and first half, respectively, to repurchase shares through Rule 10b5-1 plans pursuant to the Company’s previous program. In aggregate, the Company spent approximately $266 million in the second quarter to repurchase 2.0 million shares of its Common Stock at an average cost of approximately $131 per share. In the first half of 2018, the Company spent approximately $306 million to repurchase 2.4 million shares at an average cost of approximately $125 per share. The Company has $750 million of authorization remaining to repurchase shares under this new program, which expires in January 2022.
•Net inventories at July 31, 2018 were 8% above the prior year.
•At July 31, 2018 cash and cash equivalents and short-term investments totaled $814 million. Total debt (short-term and long-term) of $972 million was 32% of stockholders’ equity, versus 35% a year ago.

Fiscal 2018 Outlook:

Management’s guidance for fiscal 2018 includes: (i) worldwide net sales increasing by a high-single-digit percentage over the prior year both as reported and on a constant-exchange-rate basis; (ii) net earnings increasing to a range of $4.65 - $4.80 per diluted share (from a previous range of $4.50 - $4.70 per diluted share); and (iii) net earnings and earnings per share (“EPS”) in the third quarter expected to be below the prior year. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) mid-to-high-single-digit comparable sales growth, with varying degrees of growth in all regions; (ii) worldwide gross retail square footage increasing 2%, net through eight store openings, two closings and at least 15 relocations; (iii) operating margin below the prior year as a result of significant SG&A expense growth (affected by anticipated higher investment spending in technology, marketing communications, visual merchandising, digital and store presentations, as well as expenses related to the renovation of the Company’s New York City flagship store) at a higher rate than sales growth for the remainder of the year, partly offset by a higher gross margin; (iv) interest and other expenses, net in line with the prior year; (v) an effective income tax rate in the mid-20’s; (vi) net earnings and EPS over the balance of the year affected by the amount and timing of the anticipated higher investment spending; (vii) the U.S. dollar in the second half of the year stronger on a year-over-year basis; and (viii) EPS benefitting from share repurchases which are expected to total approximately $400 million for the full year.

Management also expects: (i) net cash provided by operating activities of approximately $600 million and (ii) free cash flow (see “Non-GAAP Measures”) of at least $300 million. These expectations are approximations and are based on the Company’s plans and assumptions for the full year, including: (i) net inventories increasing at or below the rate of sales growth, (ii) capital expenditures of $280 million and (iii) net earnings in line with management’s expectations, as described above.

Please click on http://investor.tiffany.com (“Events and Presentations”).

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