Market Overview

Tiffany Reports First Quarter Results:

Share:

Strong Growth in Worldwide Sales and Net
Earnings;

Management Updates Its Full Year Outlook;

Board Authorizes $1 Billion Share Repurchase
Program

Tiffany & Co. (NYSE:TIF) today reported its financial results for the
three months ("first quarter") ended April 30, 2018. Worldwide net sales
rose 15% which, combined with a higher operating margin and a lower
effective tax rate, resulted in a 53% increase in net earnings. Based on
these strong and better-than-expected results, management revised upward
its outlook for the full year ending January 31, 2019 ("fiscal 2018").
In addition, the Board of Directors approved a new $1 billion share
repurchase program.

In the first quarter:

  • Worldwide net sales increased 15% to $1.0 billion, resulting from
    broad-based sales growth; comparable sales increased 10%. 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 and comparable sales rose 11% and 7%,
    respectively.
  • Net earnings increased 53% to $142 million, or $1.14 per diluted
    share, from last year's $93 million, or $0.74 per diluted share.

Alessandro Bogliolo, Chief Executive Officer, said, "We are very pleased
with this start to the fiscal year, and we are particularly encouraged
by the breadth of sales growth across most regions and all product
categories. Most importantly, however, we remain focused on achieving
sustainable growth in comparable sales, operating margin and earnings by
pursuing and investing in the six strategic priorities we put forward in
March: Amplifying an evolved brand message; Renewing our product
offerings and enhancing in-store presentation; Delivering an exciting
omnichannel customer experience; Strengthening our competitive position
and leading in key markets; Cultivating a more efficient operating
model; and Inspiring an aligned and agile organization to win."

Mr. Bogliolo added, "In line with the priority of renewing our product
offerings, we are excited about the recent unveiling of PAPER FLOWERS, a
major collection in platinum and diamonds, ranging from fine to high
jewelry. Additions to existing product collections will follow
throughout the year."

He continued, "Simultaneously, our new campaign, "Believe in Dreams,"
has debuted across print and digital media. The fresh and whimsical
communication, featuring Elle Fanning wearing some of Tiffany's most
iconic jewelry, is a further step in the priority of amplifying an
evolved brand message. As previously announced, beginning in the second
quarter and for the balance of the year, we are stepping up our spending
in certain areas because we are committed to reaching the full,
long-term and sustainable growth potential of this legendary brand."

Net sales in the first quarter by region were:

  • In the Americas, total net sales increased 9% to $425 million and
    comparable sales rose 9%. Sales increased across the region, and
    management attributed the growth to higher spending by local customers
    and foreign tourists. On a constant-exchange-rate basis, total sales
    and comparable sales increased 8% and 9%, respectively.
  • In Asia-Pacific, total net sales rose 28% to $329 million due to
    increased retail sales in Greater China and most other markets, as
    well as higher wholesale sales in Korea; comparable sales rose 14%.
    Management attributed the growth to higher spending by local customers
    and foreign tourists. On a constant-exchange-rate basis, total sales
    and comparable sales increased 23% and 9%, respectively.
  • In Japan, total net sales rose 17% to $151 million and comparable
    sales rose 14%. Management attributed growth to higher spending by
    local customers and foreign tourists. On a constant-exchange-rate
    basis, total sales and comparable sales were 12% and 9%, respectively,
    above the prior year.
  • In Europe, total net sales increased 13% to $107 million, which
    largely reflected the positive effects from currency translation, as
    well as new stores; comparable sales rose 2%. On a
    constant-exchange-rate basis, total sales increased 1%, while
    comparable sales declined 9% due to softness across much of the
    region, which management attributed to lower spending by foreign
    tourists as well as negative effects from new stores on existing store
    sales.
  • Other net sales declined 21% to $22 million primarily due to a
    reduction in wholesale sales of diamonds.
  • Tiffany opened one Company-operated store in the first quarter and
    closed two. At April 30, 2018, the Company operated 314 stores (123 in
    the Americas, 87 in Asia-Pacific, 54 in Japan, 46 in Europe, and four
    in the UAE), versus 310 stores a year ago (124 in the Americas, 84 in
    Asia-Pacific, 54 in Japan, 43 in Europe, and five in the UAE).
  • Strong sales growth occurred in all jewelry categories (Jewelry
    Collections, Engagement Jewelry and Designer Jewelry).

Other highlights:

  • Gross margin (gross profit as a percentage of net sales) increased to
    63.0% in the first quarter from 62.1% in the prior year, largely
    reflecting sales leverage on fixed costs and the reduction in
    wholesale sales of diamonds.
  • Selling, general and administrative ("SG&A") expenses rose 9% in the
    first quarter as a result of higher fixed and variable costs,
    including labor and incentive compensation, occupancy and depreciation.
  • Earnings from operations as a percentage of net sales ("operating
    margin") rose to 19.8% in the first quarter, from 16.6% in the prior
    year's first quarter, due to sales leverage on SG&A expenses and the
    higher gross margin.
  • Interest and other expenses, net of $14 million were up slightly from
    the prior year.
  • The effective income tax rate declined to 25.3% in the first quarter,
    compared with 31.7% in the prior year, largely reflecting the
    enactment in December 2017 of the U.S. Tax Cuts and Jobs Act.
  • Net inventories at April 30, 2018 were 5% above the prior year, with
    2% of the increase resulting from currency translation.
  • The Company spent approximately $40 million in the first quarter to
    repurchase approximately 407,000 shares at an average cost of
    approximately $99 per share (see "New Share Repurchase Program" below).
  • At April 30, 2018, cash and cash equivalents and short-term
    investments totaled $1.2 billion. Total debt (short-term and
    long-term) of $980 million was 30% of stockholders' equity, versus 35%
    a year ago.

New Share Repurchase Program

The Company's Board of Directors has approved a new share repurchase
program that authorizes 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. Purchases under this new program are discretionary and
will be made from time to time based on market conditions and the
Company's liquidity needs. This new program, which expires on January
31, 2022, will replace the Company's existing share repurchase program
announced in January 2016.

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 expects to
enter into during its fiscal quarter ending July 31, 2018, subject to
market conditions.

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; and (ii) net earnings
increasing to a range of $4.50 - $4.70 per diluted share. 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) 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 high 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) no meaningful effect in
fiscal 2018 from the U.S. dollar versus foreign currencies on a
year-over-year basis; and (viii) some benefit to net earnings per
diluted share from share repurchases.

Management also expects: (i) net cash provided by operating activities
of approximately $700 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) 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.

Today's Conference Call:

The Company will conduct a conference call today at 8:30 a.m. (Eastern
Time) to review actual results and the outlook. Please click on http://investor.tiffany.com
("Events and Presentations").

Next Scheduled Announcement:

The Company expects to report its second quarter results on August 28,
2018. To be notified of future announcements, please register at http://investor.tiffany.com
("E-Mail Alerts").

Tiffany is the internationally-renowned jeweler founded in New York in
1837. Through its subsidiaries, Tiffany & Co. manufactures products and
operates TIFFANY & CO. retail stores worldwide, and also engages in
direct selling through Internet, catalog and business gift operations.
Please visit www.tiffany.com
for additional information.

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 2018 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,' ‘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; 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; growth
opportunities; litigation outcomes and recovery related
thereto; 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;
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 transaction, and/or privately negotiated transactions; 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, 2018 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 table reconciles the sales percentage
increases (decreases) from the GAAP to the non-GAAP basis versus the
previous year:

   
First Quarter 2018 vs. 2017

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

Net Sales:

Worldwide 15 % 4 % 11 %
Americas 9 1 8
Asia-Pacific 28 5 23
Japan 17 5 12
Europe 13 12 1
Other (21 ) (21 )
 

Comparable Sales:

Worldwide 10 % 3 % 7 %
Americas 9 9
Asia-Pacific 14 5 9
Japan 14 5 9
Europe 2 11 (9 )
Other (7 ) (7 )
 

Beginning in the first quarter of 2018, the Company revised its
definition of comparable sales to include e-commerce and catalog sales,
in addition to sales transacted in Company-operated stores open for more
than 12 months. The following table reconciles the comparable sales
percentage increases (decreases) from the GAAP to the non-GAAP basis
versus the previous year for the first quarter of 2017:

     

First Quarter 2017 vs. 2016
As Revised

 

First Quarter 2017 vs. 2016
As Previously Reported

GAAP
Reported
  Translation
Effect
  Constant-
Exchange-
Rate Basis
GAAP
Reported
  Translation
Effect
  Constant-
Exchange-
Rate Basis

Comparable Sales:

Worldwide (3 )% (1 )% (2 )% (3 )% (1 )% (2 )%
Americas (4 ) (4 ) (4 ) (4 )
Asia-Pacific (3 ) (1 ) (2 ) (3 ) (1 ) (2 )
Japan (1 ) (1 ) (1 ) (1 )
Europe (4 ) (7 ) 3 (3 ) (6 ) 3
Other 1 1 1 1
 

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,

2018   2017
Net sales $ 1,033.2 $ 899.6
 
Cost of sales 382.3   340.5
 
Gross profit 650.9 559.1
 
Selling, general and administrative expenses 446.6   409.5
 
Earnings from operations 204.3 149.6
 
Interest and other expenses, net 13.8   13.5
 
Earnings from operations before income taxes 190.5 136.1
 
Provision for income taxes 48.2   43.2
 
Net earnings $ 142.3   $ 92.9
 
Net earnings per share:
 
Basic $ 1.14   $ 0.75
Diluted $ 1.14   $ 0.74
 
Weighted-average number of common shares:
 
Basic 124.4 124.6
Diluted 125.0 125.3
 

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions)

 
    April 30, 2018   January 31, 2018   April 30, 2017

ASSETS

 
Current assets:
Cash and cash equivalents and short-term investments $ 1,211.9 $ 1,291.2 $ 960.0
Accounts receivable, net 227.7 231.2 233.1
Inventories, net 2,317.6 2,253.5 2,197.4
Prepaid expenses and other current assets 223.0   207.4   204.0
 
Total current assets 3,980.2 3,983.3 3,594.5
 
Property, plant and equipment, net 965.6 990.5 920.8
Other assets, net 504.8   494.3   590.9
 
$ 5,450.6   $ 5,468.1   $ 5,106.2
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
Current liabilities:
Short-term borrowings $ 96.7 $ 120.6 $ 190.6
Accounts payable and accrued liabilities 380.6 437.4 281.4
Income taxes payable 124.3 89.4 35.3
Merchandise credits and deferred revenue 82.7   77.4   75.2
 
Total current liabilities 684.3 724.8 582.5
 
Long-term debt 882.9 882.9 880.5
Pension/postretirement benefit obligations 290.7 287.4 322.8
Other long-term liabilities 286.1 284.3 200.8
Deferred gains on sale-leasebacks 38.0 40.5 44.9
Stockholders' equity 3,268.6   3,248.2   3,074.7
 
$ 5,450.6   $ 5,468.1   $ 5,106.2
 

TIF-E

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