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Leibish & Co
Friday, August 26, 2011
Tiffany Still Riding High, Reports Strong Growth in all Regions, Raises Earnings Forecast
Tiffany & Co. said Friday that worldwide net sales in the second quarter increased 30 percent year-over-year to $872.7 million due to strong growth in all geographic regions. Excluding the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales increased 24 percent and comparable store sales rose 22 percent.
The luxury retail jeweler said net earnings increased 33 percent for the period ended July 31 to $90 million and, excluding nonrecurring charges, rose 58 percent in the quarter. Management increased its earnings forecast for fiscal 2011 to reflect the better-than-expected second quarter results.
“We are extremely pleased by these results which confirm the growing global appeal of Tiffany's product offerings,” said Michael J. Kowalski, Tiffany chairman and CEO. “In addition, we have been able to absorb precious metal and gemstone cost increases while improving our gross and operating margins.”
Net sales by region:
* In the Americas, second quarter sales rose 25 percent to $438.2 million, Tiffany said. On a constant-exchange-rate basis, total sales rose 24 percent and same store sales increased 23 percent. Sales in the New York flagship store increased 41 percent in the second quarter due to strong foreign tourist demand. Same store sales in the Americas increased 19 percent and Internet and catalog sales in the Americas increased 16 percent.
* In Asia-Pacific, second quarter sales increased 55 percent to $173.2 million in the second quarter. On a constant-exchange-rate basis, sales increased 45 percent same store sales increased 41 percent, due to growth in most countries with the largest increase in the greater China region.
* In Japan, second quarter sales rose 21 percent to $142.5 million. On a constant-exchange-rate basis, total sales increased 8 percent due to same store sales growth of 8 percent.
* In Europe, sales increased 32 percent to $101.3 million in the second quarter. On a constant-exchange-rate basis, sales increased 17 percent and same store sales rose 11 percent, reflecting growth in most countries.
* Other sales rose 46 percent to $17.4 million in the second quarter, due to increased wholesale sales of finished products to independent distributors within emerging markets, partly offset in the first half by a decline in wholesale sales of rough diamonds.
Other financial highlights in the second quarter:
* Gross margin (gross profit as a percentage of net sales) was 59 percent, compared with 57.8 percent for the same period of the prior year. The increases were due to sales leverage on fixed costs.
* SG&A (selling, general and administrative) expenses rose 37 percent in the second quarter, which included nonrecurring costs of $34 million in the second quarter, versus $4 million in both of the prior-year periods, related to the relocation of Tiffany's New York headquarters staff to 200 Fifth Avenue. Excluding the nonrecurring costs, SG&A expenses rose 26 percent for the period, reflecting higher store occupancy, staffing, marketing and sales-related variable costs.
* The effective income tax rate was 31.2 percent in the quarter versus 34 percent for the same period last year, with the decline primarily due to a reversal of a valuation allowance against certain deferred tax assets.
* At July 31, 2011, cash and cash equivalents and short-term investments totaled $565.2 million versus $614.7 million last year. Total short-term and long-term debt represented 29% of stockholders' equity compared with 40% a year ago.
* Net inventories at July 31 were 18 percent above the prior year. The increase was planned to support sales growth, store openings, product introductions and expanded assortments, and higher product and raw material acquisition costs. Almost one-fourth of the increase resulted from the effect of translating stronger foreign currencies into U.S. dollars.
* Tiffany said it repurchased approximately 330,000 shares of its common stock in the second quarter at a total cost of $24.5 million, or an average cost of $74.29 per share. In the first half, it spent $52.5 million to repurchase approximately 783,000 shares at an average cost of $67.00 per share. At July 31, approximately $340 million remained available for future repurchases under the currently authorized plan, which expires January 2013.
In its outlook, Tiffany said it is increasing its full year earnings forecast to $3.65 - $3.75 per diluted share (not including nonrecurring expenses) from the previous forecast of $3.45 - $3.55 per diluted share due to the better-than-expected second quarter results.
“Despite continuing economic uncertainty, our strong first half performance gives us ample reason to remain confident about our prospects for the balance of the year,” Kowalski said. “We are encouraged that total worldwide sales growth in the third quarter-to-date is continuing to exceed our expectations due to noteworthy strength in the Americas, Asia-Pacific and Japan, demonstrating, once again, the attraction of the Tiffany & Co. brand.”
Tiffany operates 236 stores (98 in the Americas, 55 in Japan, 52 in Asia-Pacific and 31 in Europe), versus 223 a year ago (91 in the Americas, 57 in Japan, 48 in Asia-Pacific and 27 in Europe).
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I am a freelance writer and editor who covers the luxury jewelry and watch industry for several publications, including Forbes.com the Financial Times, Hong Kong-based JewelleryNetAsiaand the Italian jewelry magazine, VO+. In addition, I have my own blog covering the jewelry and watch industry, Jewelry News Network.