Market Overview

Tiffany Reports Second Quarter Results:

Share:

Worldwide Sales Rise 12% and Net Earnings up
26%;

Company Repurchases $266 Million of Stock in
the Quarter;

Management Increases Full Year Earnings Outlook

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.

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 third quarter results on November 28,
2018. To be notified of future announcements, please register at http://investor.tiffany.com
("E-Mail Alerts").

About Tiffany & Co.:

In 1837 Charles Lewis Tiffany founded his company in New York City where
his store was soon acclaimed as the palace of jewels for its exceptional
gemstones. Since then TIFFANY & CO. has become synonymous with elegance,
innovative design, fine craftsmanship and creative excellence. During
the 20th century fame thrived worldwide with store network expansion and
continuous cultural relevance, as exemplified by Truman Capote's Breakfast
at Tiffany's
and the film starring Audrey Hepburn.

Today, with more than 13,000 employees, TIFFANY & CO. and its
subsidiaries design, manufacture and market jewelry, watches and luxury
accessories – including more than 5,000 skilled artisans who cut
diamonds and craft jewelry in the Company's workshops, realizing its
commitment to superlative quality. The Company operates more than 300
TIFFANY & CO. retail stores worldwide as part of its omnichannel
approach. To learn more about TIFFANY & CO. as well as its commitment to
sustainability, please visit tiffany.com.

Forward-Looking Statements:

The historical trends and results reported in this document and on our
second 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; store productivity; the renovation of the
Company's New York City flagship store, including the timing and cost
thereof, and the temporary expansion of its retail operations to 6 East
57th Street; 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
(including the potential for rapid and unexpected changes in government,
economic and political policies, the imposition of additional duties,
tariffs, taxes and other charges or other barriers to trade, including
as a result of changes in diplomatic and trade relations or agreements
with other countries); 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; the Company's receipt of any required approvals
to the aforementioned renovation of its New York City flagship store and
expansion of its retail operations to 6 East 57th Street, as well as the
timing of such approvals; changes in the cost and timing estimates
associated with the aforementioned renovation and expansion; delays
caused by third parties involved in the aforementioned renovation and
expansion; any casualty, damage or destruction to the Company's flagship
store or 6 East 57th Street; 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:

       
Second Quarter 2018 vs. 2017 First Half 2018 vs. 2017

GAAP
Reported

 

Translation
Effect

 

Constant-
Exchange-
Rate Basis

GAAP
Reported
  Translation
Effect
  Constant-
Exchange-
Rate Basis

Net Sales:

Worldwide 12 % 1 % 11 % 13 % 2 % 11 %
Americas 8 8 8

8
Asia-Pacific 28 2 26 28 4 24
Japan 11 2 9 14 3 11
Europe 5 3 2 9 7 2
Other (21 ) (21 ) (21 ) (21 )
 

Comparable Sales:

Worldwide 8 % 1 % 7 % 9 % 2 % 7 %
Americas 8 8 9 9
Asia-Pacific 12 2 10 13 4 9
Japan 9 1 8 12 3 9
Europe (1 ) 3 (4 ) 1 7 (6 )
Other 5 5 (2 ) (2 )
 

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. For reference purposes, the following tables reconcile
the comparable sales percentage increases (decreases) from the GAAP to
the non-GAAP basis versus the previous year for the second quarter and
first half of 2017:

       
Second Quarter 2017 vs. 2016
As Revised
Second 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 (1 )% (1 )% % (2 )% (1 )% (1 )%
Americas (1 ) (1 )
Asia-Pacific (7 ) (7 ) (7 ) (7 )
Japan 3 (6 ) 9 3 (6 ) 9
Europe (1 ) (2 ) 1 (2 ) (2 )
Other (8 ) (8 ) (8 ) (8 )
 
First Half 2017 vs. 2016
As Revised
First Half 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 (2 )% (1 )% (1 )% (2 )% (1 )% (1 )%
Americas (2 ) (2 ) (2 ) (2 )
Asia-Pacific (5 ) (1 ) (4 ) (5 ) (1 ) (4 )
Japan 1 (3 ) 4 1 (3 ) 4
Europe (2 ) (4 ) 2 (2 ) (3 ) 1
Other (3 ) (3 ) (3 ) (3 )
 

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
July 31,

Six Months Ended
July 31,
2018   2017 2018   2017
Net sales $ 1,075.9 $ 959.7 $ 2,109.1 $ 1,859.3
 
Cost of sales 387.1   360.1   769.4   700.6
 
Gross profit 688.8 599.6 1,339.7 1,158.7
 
Selling, general and administrative expenses 497.6   414.9   944.2   824.3
 
Earnings from operations 191.2 184.7 395.5 334.4
 
Interest and other expenses, net 9.2   12.2   23.0   25.7
 
Earnings from operations before income taxes 182.0 172.5 372.5 308.7
 
Provision for income taxes 37.3   57.5   85.5   100.8
 
Net earnings $ 144.7   $ 115.0   $ 287.0   $ 207.9
 
Net earnings per share:
 
Basic $ 1.17   $ 0.92   $ 2.32   $ 1.67
Diluted $ 1.17   $ 0.92   $ 2.31   $ 1.66
 
Weighted-average number of common shares:
 
Basic 123.2 124.5 123.8 124.6
Diluted 124.0 125.1 124.5 125.2
 
         
TIFFANY & CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 

(Unaudited, in millions)

 
July 31, 2018 January 31, 2018 July 31, 2017

ASSETS

 
Current assets:
Cash and cash equivalents and short-term investments $ 814.1 $ 1,291.2 $ 1,043.5
Accounts receivable, net 207.0 231.2 223.3
Inventories, net 2,411.8 2,253.5 2,236.9
Prepaid expenses and other current assets 256.4   207.4   218.3
 
Total current assets 3,689.3 3,983.3 3,722.0
 
Property, plant and equipment, net 970.5 990.5 939.6
Other assets, net 510.4   494.3   608.0
 
$ 5,170.2   $ 5,468.1   $ 5,269.6
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
Current liabilities:
Short-term borrowings $ 90.3 $ 120.6 $ 235.0
Accounts payable and accrued liabilities 428.4 437.4 301.4
Income taxes payable 24.3 89.4 32.8
Merchandise credits and deferred revenue 67.3   77.4   78.6
 
Total current liabilities 610.3 724.8 647.8
 
Long-term debt 881.4 882.9 881.1
Pension/postretirement benefit obligations 293.5 287.4 326.1
Other long-term liabilities 278.6 284.3 213.3
Deferred gains on sale-leasebacks 34.9 40.5 43.3
Stockholders' equity 3,071.5   3,248.2   3,158.0
 
$ 5,170.2   $ 5,468.1   $ 5,269.6
 

TIF-E

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