Tiffany Reports Stellar Q1 Earnings - Analyst Blog

Shares of Tiffany & Company TIF rose over 8% on the index in the pre market trading hours following brilliant first quarter fiscal 2014 earnings. Tiffany posted first-quarter earnings of 97 cents per share, way ahead of the Zacks Consensus Estimate of 77 cents per share and prior year quarter's adjusted earnings of 70 cents.  Results benefited from higher sales and improved operating margin.

Tiffany posted net sales of $1,012.1 million during the quarter, up 13% from the prior-year quarter, driven by healthy performance across all regions. Moreover, total revenue came much ahead of the Zacks Consensus Estimate of $953 million. In constant currencies, net sales jumped 15%, whereas comparable-store sales (comps) climbed 11%.

By geographic segment, sales in the Americas grew 8% to $439 million, while comps rose by 7%; sales in the Asia-Pacific region climbed 17% to $261 million, whereas comps increased 8%; sales in Japan grew 20% to $174 million and comps increased 21%; and sales in Europe jumped 9% to $101 million and comps increased 4%. Other region sales surged 39% to $37 million whereas comps grew 18%.

In constant currencies, sales in the Americas rose 9%, while comps grew by 8% during the quarter; sales in the Asia-Pacific region grew 19%, whereas comps rose 10%; sales in Japan advanced 29%, while comps also grew by 30%; and sales in Europe climbed 2%, whereas comps fell 3% during the quarter.

Gross profit for the quarter increased 17.1% to $589.5 million, while gross margin expanded 200 basis points to 58.2% due to lower product cost and increase in prices. Operating income jumped 48.6% to $209.8 million, while operating margin increased 490 basis points to 20.7%. The margin improvement was driven by higher gross margin and sales leverage on fixed selling, general & administrative expense (SG&A) expenses.

Store Update

Tiffany opened 4 outlets and closed one outlet during the quarter. The company plans to open 13 stores and shut down 4 stores in fiscal 2014. As of Apr 30, 2014, the company operated 292 stores (121 in the Americas, 72 in Asia-Pacific, 55 in Japan, 38 in Europe and 5 in the U.A.E and 1 in Russia).

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $381.2 million, and total short-term and long-term debt of $991.8 million, reflecting 35% of shareholders equity. Capital expenditures of $35 million were incurred in the quarter. Management projected capital expenditure of $270 million and expects to generate free cash flow of at least $400 million for fiscal 2014.

Tiffany bought back shares worth $7 million in the quarter. In Mar 2014, the company's board of directors had authorized a share repurchase program of $300 million, which is slated to expire on March 31, 2017.

Guidance

Following a robust first quarter, Tiffany raised its earnings expectations. The company now projects fiscal 2014 earnings between $4.15—$4.25 per share as against $4.05—$4.15 per share expected earlier. The current Zacks Consensus Estimate for fiscal 2014 is $4.16 per share, which could witness an upward revision in the coming days.

Tiffany now expects total net sales growth in high-single digit percentage for fiscal 2014 both in U.S. dollars and in constant currencies with growth across all regions.

Zacks Rank for Tiffany

Tiffany currently sports a Zacks Rank #3 (Hold). Other better ranked retail stocks that look promising includes Movado Group, Inc. MOV, Signet Jewelers Ltd. SIG and Hanesbrands Inc. HBI.  All of these stocks carry a Zacks Rank #2 (Buy).