Roger Farah Named New Tiffany Chairman

Tiffany & Co. said Thursday that its company's board of directors has elected Roger Farah as its chairman, effective October 2. Farah, 64, joined Tiffany's Board in March 2017. He has served in leadership roles at Ralph Lauren Corporation, Venator Group, Inc., R.H. Macy & Co., Inc. and Federated Merchandising Services.

He most recently served leadership roles with Tory Burch. First as co-CEO and director of Tory Burch from September 2014 till March 2017 and then as executive director in advisory role since March when he joined Tiffany’s board

He will replace Michael J. Kowalski who has held multiple leadership roles for a number of years at Tiffany. He has been the board chairman since 2002 and has served on Tiffany’s board since 1995. He will remain on the board after the change.

In addition, Kowalski, who was Tiffany’s CEO from 1999 until his retirement in March 2015, and served as interim CEO since February 2017, will relinquish that title when the company's newly appointed CEO, Alessandro Bogliolo, joins the company in October.

“Roger has significant experience as a leader in the luxury retail industry, and I and my fellow directors value tremendously his expertise and insight which have been apparent during his time on the board,” Kowalski said in a statement. “With the appointment of Alessandro as our new CEO, and under Roger’s leadership on the board, I believe we are well positioned to execute on strategies to drive comparable store sales growth and stronger earnings growth in the longer-term.” 

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Tiffany CEO Frederic Cumenal ‘Steps Down’ Amid Financial Disappointment

Frederic Cumenal

In a Super Bowl Sunday shocker Tiffany & Co. said that Frederic Cumenal has “stepped down” as its chief executive officer, effective immediately. Michael J. Kowalski, chairman of Tiffany’s board of directors and previous CEO, will serve as interim CEO while the company works with an executive search firm to finds a successor. In a statement, the company said the decision was based on disappointing financial results.

“The board is committed to our current core business strategies, but has been disappointed by recent financial results,” Kowalski said in a statement. “The board believes that accelerating execution of those strategies is necessary to compete more effectively in today’s global luxury market and improve performance.”

The announcement came just hours before the luxury jewelry retailer plans to unveil Lady Gaga as the face of its new fashion jewelry collection, Tiffany HardWear, with its first ever Super Bowl commercial prior to her halftime performance. The company also creates the Vince Lombardi Trophy, presented to the Super Bowl champion, as well as the Pete Rozelle Trophy, presented to the Most Valuable Player of the Super Bowl.

Even taking into consideration that most news and financial staffs will have skeleton crews working and the nation will be focused on the game rather than personnel moves, the timing of the announcement during such an important time for the company seems surprising. 

Mark L. Aaron, Tiffany's VP-Investor Relations, said on Sunday that the timing was coincidental. “That’s just the way it happened,” he said. “Analysts, investors and media work 24-7 and it still gives people a chance to watch the Super Bowl.”

Michael J. Kowalski

Cumenal replaced Kowalski as Tiffany’s CEO April 1, 2015. He previously served as president of the company with responsibilities for worldwide sales and distribution as well as design, merchandising and marketing functions. He initially joined Tiffany in March 2011 as an executive vice president with responsibilities for sales and distribution.

“On behalf of the entire board of directors, I would like to thank Frederic Cumenal for his contributions to Tiffany,” Kowalski said. “At a time of continuing challenges in the global luxury market, Frederic has enhanced the management team and taken important steps to position Tiffany for success in the long term. We wish him the best in his future endeavors.”

Cumenal said in the statement, “I am proud of what we have accomplished at Tiffany and would like to thank the management team and our many talented employees around the world with whom I have had the pleasure to work. I have great confidence in Tiffany's brand, strategic direction and people, and I believe the company will have many exciting opportunities in the future.” 

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Tiffany Names Mark Erceg As CFO

Tiffany & Co. appointed Mark Erceg as its executive vice president and chief financial officer, responsible for the company's worldwide financial, indirect procurement and information technology functions.

Erceg, 47, will be based in New York and will report to Frederic Cumenal, Tiffany CEO. His appointment will become effective on October 18. He replaces Tiffany's former chief financial officer who left the Company in May to pursue another position with a different company.

Erceg was previously employed at Canadian Pacific Railway Ltd., where he has served as executive VP and CFO since May 2015. From 2010 - 2015, he was the CFO for Masonite International Corp. He began his career at Procter & Gamble in 1992 where, over 18 year period, he served in positions of increasing responsibility in finance, market strategy, customer response, general management and global investor relations.

"Mark brings an operational process orientation and a broad financial, international and consumer brands background to Tiffany," Cumenal said in a statement issued Tuesday. "As the new leader of our multi-talented finance, procurement and information technology organizations, his varied experience and global perspective will be important as we continue to work toward strengthening Tiffany's luxury brand position around the world and enhancing our profitability and productivity." 

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Tiffany And Signet Report Declines In Second Quarter Sales

Two of the most important jewelers in North America report a decline in total sales and comparable store sales during the second quarter of 2016.

Tiffany & Co.
The luxury retail jeweler said worldwide net sales for the second quarter fell 6 percent to $932 million and comparable store sales dropped 8 percent, year-over-year. Exchange rates seemed to have little effect on the global declines, with the exception of Japan. On a constant-exchange-rate basis, worldwide net sales and comparable store sales declined 6 percent and 9 percent, respectively.

Sales declines were reported throughout all of its regions, with the exception of Japan. The company, which operates 311 stores around the world, attributes the drop in sales to decreased activity from local customers and foreign tourists.

The latest quarter brings worldwide net sales to $1.8 billion for the first half of the year—7 percent below the first half of the prior year and comparable store sales declined 9 percent. On a constant-exchange-rate basis, worldwide net sales and comparable store sales declined 6 percent and 9 percent, respectively.

“The global environment continues to reflect well known challenges that we believe have had broad effects on spending by local customers, as well as foreign tourists, especially from China,” said Frederic Cumenal, Tiffany & Co. CEO. “We are managing expenses efficiently, but also maintaining our marketing spending as a percentage of sales and continuing to invest in key strategic initiatives and opportunities to further strengthen Tiffany's competitive position among global luxury brands.”

Net sales by region are as follows:

In the Americas, total sales of $434 million in the second quarter and $837 million in the first half were both 9 percent below last year, with declines of 9 percent and 10 percent, respectively, in comparable store sales. On a constant-exchange-rate basis, total sales and comparable store sales declined 8 percent and 9 percent, respectively, in both the second quarter and first half. Tiffany attributed the declines to lower spending by U.S. customers as well as by Chinese and other foreign tourists.

In the Asia-Pacific region, total sales of $230 million in the second quarter and $469 million in the first half were down 6 percent and 7 percent, respectively, lower than the prior year, and comparable store sales declined 12 percent and 13 percent, respectively. On a constant-exchange-rate basis, total sales and comparable store sales declined 3 percent and 9 percent, respectively, in the second quarter and 4 percent and 11 percent, respectively, in the first half. Sales growth in China and Korea was offset by a continuation of significant declines in Hong Kong and more moderate declines in most other markets.

In Japan, total sales increased 10 percent to $138 million in the second quarter and rose 9 percent to $269 million in the first half. Comparable store sales increased of 13 percent and 12 percent, respectively. However, on a constant-exchange-rate basis, total sales and comparable store sales declined 5 percent and 3 percent, respectively, in the second quarter and declined 2 percent and rose 1 percent, respectively, in the first half. Management noted lower spending by Chinese tourists in both periods.

In Europe, total sales declined 12 percent to $111 million in the second quarter and 11 percent to $208 million in the first half of 2016. Comparable store sales fell 17 percent and 16 percent for the period. On a constant-exchange-rate basis, total sales and comparable store sales declined 8 percent and 13 percent, respectively, in the second quarter and 7 percent and 13 percent, respectively, in the first half. Lower sales in continental Europe were attributed to weak demand by foreign tourists and local customers, in contrast to better performance in the UK.

Other sales declined 3 percent to $18 million in the second quarter and 20 percent to $40 million in the first half, reflecting comparable store sales declines of 22 percent and 21 percent, respectively. Management noted lower retail sales in the United Arab Emirates and an increase in wholesale sales of diamonds.

Signet Jewelers
The dominate retail jeweler in the U.S., Canada and the U.K. reported a year-over-year sales decline of 2.6 percent to $1.37 billion. Total sales on a constant currency basis declined 1.3 percent. Comparable store sales decreased 2.3 percent compared to an increase of 4.2 percent in the second quarter of the prior year.

The company said “the decline was fairly broad-based across most store banners and merchandise categories and was particularly pronounced in energy-producing regions.”

“We are disappointed by our Q2 results and market conditions have been challenging particularly in the energy-dependent regions,” added Mark Light, Signet Jewelers CEO. “We achieved some important wins in the second quarter. Select diamond fashion jewelry, bracelets, and earrings sold well. We saw success in a variety of selling channels including outlets, kiosks, and on-line due to improvements in our consumer websites and mobile sites. The Zale integration is running well and synergies remain on target. We remain confident in the medium and long-term prospects of our business.”

Signet Jewelers second quarter sales by operating segment is as follows:

• The Sterling Jewelers division (which consists of U.S. retail chains Kay, Jared and regional US brands) saw comparable store sales fall 3.1 percent with the average transaction value down 0.8 percent. The company attributed this to “relatively stronger sales of several fashion and diamond jewelry collections as compared to higher-priced bridal jewelry.” The number of transactions decreased 3 percent. 

• Zale Jewelry division (which includes Zale and Gordon stores in the US, Canada and Puerto Rico along with Peoples Mappins stores in Canada) saw same store sales decrease by 3 percent. ATV increased 1.2 percent “driven by higher sales of select diamond jewelry collections,” the company said. The number of transactions decreased 4 percent.

• Piercing Pagoda's same store sales increased 6.4 percent. ATV increased 17 percent while the number of transactions decreased 7.7 percent. The higher sales “were driven principally by strong sales of gold chains and diamond jewelry. Transactions declined primarily due to fewer piercings.”

• In the UK Jewelry division (which consists of H.Samuel and Ernest Jones) same store sales increased 0.8 percent. ATV increased 2.5 percent “driven principally by strong sales of diamond jewelry and prestige watches,” while the number of transactions decreased 3 percent due to lower sales in fashion watches, the company said. 
Ecommerce sales, which have seen robust growth in recent years, continued this path in the second quarter with a 5.6 percent increase to $69.6 million. This total accounts for 5.1 percent of total sales for the period. 

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Tiffany's Global Net Sales Down 7%, Comps Down 9%

Tiffany & Co. on Wednesday reported that worldwide net sales declined 7 percent to $891 million and comparable store sales declined 9%, year-over-year, for the first quarter of 2016. Sales declined in all regions except Japan, which the luxury jeweler attributes to “a continuation of softness in spending by both local customers and foreign tourists.”

Net earnings were also lower than the prior year resulting from a decline in the operating margin, as improved gross margin was more than offset by a lack of sales leverage on operating expenses, the New York-based company said

On a constant-exchange-rate basis that excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales declined 7 percent, and comparable store sales declined 9 percent.

Net earnings fell 17 percent year-over-year to $87 million. 

“As expected, this was a difficult quarter in terms of both sales and earnings growth,” said Frederic Cumenal, Tiffany & Co. CEO. “We faced numerous challenges, including continued pressure from foreign tourist spending in Europe, the U.S. and Asia, particularly in Hong Kong.”

Net sales by region in the first quarter are as follows:

In the Americas, total sales fell 9 percent to $403 million and comparable store sales declined 10 percent, year-over-year. On a constant-exchange-rate basis total sales and comparable store sales declined 8 percent and 9 percent, respectively, due to “varying degrees of softness in spending by U.S. customers and foreign tourists.”

In the Asia-Pacific region, total sales fell 8 percent to $238 million and comparable store sales declined 15 percent, year-over-year. On a constant-exchange-rate basis total sales and comparable store sales declined 5 percent and 12 percent, respectively. The company said total sales growth in China and Korea was offset “by a continued significant decline in Hong Kong and more moderate declines in other markets.”

In Japan, total sales of $131 million were 8 percent above the prior year and comparable store sales increased 12 percent, year-over-year. On a constant-exchange-rate basis total sales and comparable store sales rose 1 percent and 5 percent, respectively. Management attributed the sales growth to higher spending by local customers.

In Europe, total sales fell 9 percent to $97 million and comparable store sales declined 15 percent, year-over-year. On a constant-exchange-rate basis total sales and comparable store sales declined 7 percent and 14 percent, respectively, “due to softness in most countries, led by France, attributed largely to lower foreign tourist spending.”

Other sales declined 30 percent to $22 million, and comparable store sales declined 21 percent, reflecting lower retail sales in the United Arab Emirates and wholesale sales in other markets.

Tiffany updated its full year earnings forecast and now expects a decline by a mid-single-digit percentage from 2015’s adjusted earnings per diluted share. 

Tiffany opened two company-operated stores in the first quarter (in Europe) and closed one location (in Japan). As of April 30, the company operated 308 stores (124 in the Americas, 81 in Asia-Pacific, 55 in Japan, 43 in Europe, and five in the UAE), compared with 298 stores a year ago (123 in the Americas, 75 in Asia-Pacific, 56 in Japan, 39 in Europe, and five in the UAE).

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Former Tiffany Exec Sentenced To A year In Prison For Stealing $2M From Employer

Ingrid Lederhaas-Okun

In terms of news, it hasn't been a good holiday for Tiffany & Co. Over the weekend the luxury jeweler learned it lost its dispute with Swatch Group. Now, the latest high-profile mishap was the sentencing Monday of a former employee for the theft of 2.1 million in jewelry from the company’s Fifth Avenue headquarters building. 

Of course it's a much more difficult holiday for Ingrid Lederhaas-Okun, a former VP of design & product development at Tiffany & Co., who was sentence to a year and a day in prison in Manhattan federal court by U.S. District Judge Paul G. Gardephe. 

Lederhaas-Okun, 47, of Darien, Conn., pled guilty in July for the theft, which occurred over a four-month period. In addition to the prison term, she was sentenced to one year of supervised release, ordered to forfeit more than $2.1 million pay and more than $2.2 million in restitution.

Under her duties and responsibilities at Tiffany, Lederhaas-Okun had the authority to check out jewelry belonging to Tiffany for work-related reasons. Between November 2012 and February 2013, she admitted to checking out more than 165 pieces of jewelry with a retail value of more than $1.2 million, including diamond bracelets, platinum or gold diamond drop and hoop earrings, platinum diamond rings, and platinum and diamond pendants. She then sold some if not all of this jewelry for $1.3 million to another company in Manhattan, who the US Attorney’s office and the court haven’t named. It’s also unclear whether the company knew it was purchasing stolen jewelry. 

To conceal her theft, she repeatedly made false statements to Tiffany, according to court documents. For example, after her termination in February 2013, she told company representatives that she had only recently checked out the missing jewelry in anticipation of creating a PowerPoint presentation. However, the missing jewelry had been checked out months earlier, her supervisor was unaware of any such presentation being worked on by her and there was no presentation on her computer. In addition, she claimed the stolen jewelry could be found in a white envelope in her office, but a search of her office shortly after her departure did not yield any such envelope.

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A ‘Shocked’ and ‘Disappointed’ Tiffany & Co. Ordered to Pay $450 Million to Swatch Group

A long, simmering dispute between two powerhouses in the luxury jewelry and watch world appears to have come to an end when a Dutch arbitration panel ordered Tiffany & Co. to pay 402 million Swiss francs ($450 million) to Swatch Group for breach of contract. In addition, a counter-claim by Tiffany & Co. was dismissed by the panel.

The dispute, which has been ongoing since 2011, was argued before the Netherlands Arbitration Institute, which provides a confidential way of resolving such disagreements. The result of the arbitration in Swatch’s favor was announced in a very brief statement by the watch company Sunday followed by a much longer statement filed with the Securities & Exchange Commission Monday morning by Tiffany. 

Tiffany cut its forecast for the year based on the ruling and it says it will continue to seek legal remedies.

“We were shocked and extremely disappointed with the decision of the majority of the arbitral panel,” said Michael J. Kowalski, Tiffany chairman and CEO, in the SEC statement. “We firmly believe the panel’s ruling is not supported by the facts of this case or the various agreements between the Swatch parties and the Tiffany parties. While we are reviewing our options with our legal counsel, I want to assure you that we do have sufficient financial resources to pay the full amount. We will record a charge for the after-tax impact of the award, which we estimate to be approximately $295 - 305 million, in the fourth quarter.”

In 2007, the two companies announced that they signed an agreement to produce and market watches under the Tiffany & Co. brand name. In September 2011, Swatch Group had terminated the collaboration for what it termed as a breach of contract and pressed claims for damages in December 2011 against Tiffany. In March 2012, Tiffany filed a counterclaim with the court of arbitration in charge.

The original agreement between the two parties was that Swatch Group—which produces, markets and sells watches under approximately 20 brands from the popular low-cost Swatch watch to the prestige and luxury brand, Breguet—was to design and produce watches under the Tiffany brand name. Those watches were to be sold through Tiffany stores around the world. Tiffany apparently didn’t think the watches created by Swatch fit their brand image. Swatch charged that Tiffany did little to market and sell those watches.

Tiffany noted in its statement that one of the three members of the arbitration panel issued a dissenting opinion and that the amount awarded reflects approximately 8.8 percent of the damages claimed by Swatch.

Tiffany, according to its statement, was also ordered to pay two-thirds of the cost of arbitration (approximately $800,000) and two-thirds of the cost of legal fees ($8.8 million).

 “We do not believe that the award will impact our ability to realize our existing business plans in the short or long term, and we are extremely pleased to be moving forward with our plans to design, produce, market and distribute our own Tiffany & Co. brand watches,” Kowalski said.

Kowalski said the payments will be made from cash on hand and funds available under its existing debt facilities. The company said that the charges associated with the award will reduce earnings per diluted share for the fiscal year ended January 31, 2014, to $2.30 - $2.35 from the guidance of $3.65 - $3.75, issued a month earlier.

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Tiffany Q2 Earnings Up 16%, Global Sales Up 4%

Exceptional growth in China along with improvements in operating margins led to a better-than-expected 16 percent net earnings increase to $107 million, or $0.83 per diluted share, in the second quarter for Tiffany & Co.

Worldwide net sales for the New York-based luxury jeweler rose 4 percent to $926 million. On a constant-exchange-rate basis, worldwide net sales rose 8 percent, and comparable store sales rose 5 percent due to sales growth in most regions.

As a result, the company raised its year-end outlook to $3.50-$3.60 per diluted share, from $3.43-$3.53 per diluted share in its first quarter outlook. It also plans to continue its worldwide expansion of stores unabated.

In addition to regional growth, product categories also performed well, according to Tiffany’s second-quarter earnings report released Tuesday. The results were dampened a bit by lower-than-expected sales growth in the US and the drastic decline of the Japanese Yen.

Mark L. Aaron, Tiffany VP-Investor Relations, said in a conference call Tuesday that growth in fine jewelry and statement jewelry were extremely strong and outperformed modest growth in fashion jewelry. He added that diamond jewelry, led by colored diamonds, did well particularly well for the period.

Gross margin (gross profit as a percentage of net sales) increased to 57.5 percent in the second quarter from 56.3 percent a year ago. Aaron said this was the result of diminishing product cost pressure and price increases taken earlier in the year. This help lead to a “better-than-expected” improvement in operating margin.

“We were pleased with the results of our efforts to improve gross margin which, combined with well-controlled expenses, yielded a solid increase in operating margin,” added Michael J. Kowalski, Tiffany chairman and CEO.

Sales by region are as follows:

* In the Americas, total sales increased 2 percent to $444 million in the second quarter. Comparable store sales were unchanged in the quarter, led by growth in Tiffany’s New York flagship store sales. Aaron noted that sales in the US were lower than expected and were mixed throughout the country with no discernible pattern.

* Total sales in the Asia-Pacific region rose 20 percent to $208 million in the second quarter. On a constant-exchange-rate basis, total sales also rose 20 percent and comparable store sales increased 13 percent, “led by especially strong sales growth in Greater China,” the company said in its report.

* Aaron focused a great deal of time on Japan where the company operates 54 stores. The negative translation effect from a substantially weaker yen caused total sales to decline 14 percent to $136 million in the second quarter. However, he noted that on a constant-exchange-rate basis, total sales increased 7 percent in the second quarter, due to comparable store sales growth of 8 percent with strong growth in engagement and higher-end jewelry categories.

* Total sales in Europe rose 11 percent to $111 million in the second quarter. On a constant-exchange-rate basis, total sales rose 10 percent and comparable store sales rose 7 percent due to sales growth in the United Kingdom and most of continental Europe.

* Sales classified as “Other” sales increased 33 percent to $26 million in the second quarter, primarily reflecting the conversion in July 2012 of five Tiffany & Co. stores in the United Arab Emirates from independently-operated to company-operated. The company said it expected to increase its presence in the Middle East.

Tiffany opened three stores in the second quarter, including its ninth in Hong Kong store. Other openings were in, in Verona, Italy and in Villahermosa, Mexico. The company closed a store in Tokyo, due to the mall the store was in closing for long-term renovations, Aaron said.

The company in the second quarter operated 277 stores (116 in the Americas, 67 in Asia-Pacific, 54 in Japan, 35 in Europe and five in the U.A.E.), versus 260 stores (106 in the Americas, 61 in Asia-Pacific, 55 in Japan and 33 in Europe and five in the U.A.E.) a year ago.

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Tiffany Exec Arrested for Stealing $1.3M in Jewelry

The Linkedin photo of Ingrid Lederhaas-Okun. 

Ingrid Lederhaas-Okun, a former VP of Design & Product Development at Tiffany & Co., was arrested Tuesday morning at her residence in Darien, Conn., for allegedly stealing nearly $1.3 million worth of jewelry from her employer. She was scheduled to be arraigned in Manhattan federal court later in the day to face charges of wire fraud and interstate transportation of stolen property.

Lederhaas-Okun used her executive position to allegedly “check out” 165 pieces of jewelry with a retail value of more than $1.2 million, including diamond bracelets, platinum or gold diamond drop and hoop earrings, platinum diamond rings, and platinum and diamond pendants, according to a statement from the U.S. Attorney’s Office for the Southern District of New York. 

She then allegedly “sold some if not all” of this jewelry for $1.3 million to a company the feds describe as “a leading international buyer and reseller of jewelry with an office in midtown Manhattan,” according to the statement.

In addition to the jewelry under question, federal prosecutors allege that in November 2012, following an announcement by Tiffany that it was going to undertake a full physical inventory review, Lederhaas-Okun said that approximately $1.5 million worth of jewelry which she had checked out would have to be written off. “However, none of that jewelry was ever returned to the jewelry company, contrary to the usual practice of accounting for inventory, such as damaged jewelry, that would have to be written off because it had been rendered unusable in some way,” federal officials said in the statement

Prosecutors allege that Lederhaas-Okun made repeated false statements to the luxury jeweler. “For example, after her termination in February 2013, she told the jewelry company that she had only recently checked out the missing jewelry in anticipation of creating a PowerPoint presentation for her supervisor, and that a draft of the presentation could be found on her office computer. However, the missing pieces of jewelry had been checked out months earlier, her supervisor was unaware of any such presentation being worked on … and there was no draft presentation on her computer.”

Lederhaas-Okun also claimed the jewelry in question could be found in a white envelope in her office, but after a search of her office, the envelope wasn’t recovered, prosecutors allege.

The statement did not identify Tiffany by name. However, a Linkedin page for Lederhaas-Okun shows that she worked for the luxury retail jeweler from January 1991 till March 2013, including a six-year stint as VP of Design & Product Development. 

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Tiffany’s Q4 and Full-Year Sales Up 4%

Tiffany & Co. said Friday net sales in the fourth quarter increased 4 percent to $1.2 billion year-over-year and net earnings rose 1 percent to $180 million. On a constant-exchange-rate basis that excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales rose 5 percent, for the period ended Jan. 31, due to growth in all regions and comparable store sales equaled the prior year.

For the year, also ended January 31, worldwide net sales increased 4 percent to $3.8 billion, year-over-year, while net earnings declined 5 percent to $416 million. Earnings fell 11 percent when excluding nonrecurring items in the prior year.

“These quarterly sales results were consistent with the holiday trends we had issued in early January,” said Michael J. Kowalski, Tiffany chairman and CEO. “While financial results in fiscal 2012 were disappointing due to lower-than-expected sales growth and pressures on gross margin, we continued to maintain a longer-term focus on strengthening global awareness of the Tiffany & Co. brand and on further developing compelling product offerings.”

Kowalski took an optimistic tone for Tiffany’s 2013 outlook. “We will be pursuing important growth opportunities in 2013, with plans including exciting new jewelry collections, enhanced customer communications through print and digital media, and expansion of our global base with additional stores,” he said. “Tiffany is well positioned to achieve net earnings growth of 6 percent – 9 percent and healthy free cash flow.”

Net sales highlights are as follows:

* Total sales in the Americas region increased 2 percent to $620 million in the fourth quarter and 2 percent to $1.8 billion in the full year (representing 48 percent of 2012 worldwide sales). On a constant-exchange-rate basis, total sales increased 2 percent in both the quarter and full year; on that basis, comparable store sales declined 2 percent in both the quarter and full year. Sales in the New York flagship store fell 3 percent in both the quarter and full year, while comparable branch store sales were 2 percent below both prior-year periods with no meaningful geographical differences in the U.S.). Internet and catalog sales rose 6 percent and 4 percent in the fourth quarter and full year.

* In the Asia-Pacific region, total sales rose 13 percent to $254 million in the fourth quarter and 8% to $810 million, or 21% of worldwide sales, in the full year. On a constant-exchange-rate basis, total sales rose 10% in the fourth quarter due to sales growth in Greater China and in other markets and rose 8% in the full year; on that basis, comparable store sales rose 6% in the quarter and 2% in the full year.

* Total sales in Japan declined 6 percent to $192 million in the fourth quarter, reflecting a weaker Japanese yen versus the U.S. dollar. Sales for the full year increased 4 percent to $639 million, or 17 percent. However, on a constant-exchange-rate basis, total sales rose 2 percent in the quarter and 6 percent. Comparable store sales rose 2 percent and 7 percent in the quarter and full year.

* In Europe, total sales increased 3 percent to $146 million in the fourth quarter due to mixed performances by country and also rose 3% to $432 million, or 11% of worldwide sales, in the full year. On a constant-exchange-rate basis, total sales increased 3% and 7% in the quarter and full year and comparable store sales were unchanged in the quarter and rose 2% in the full year.

* Sales categorized “Other,” nearly doubled to $24 million in the fourth quarter and rose 41 percent to $73 million in the full year. The strong growth in both periods reflected the conversion in July of five Tiffany & Co. stores in the United Arab Emirates from independently-operated distribution to company-operated retail stores.

* Tiffany added 28 company-operated stores in the full year: 13 in the Americas with four in the U.S., six in Canada (including four department-store boutiques in Canada that were converted to company-operated locations), two in Mexico and one in Brazil; eight in Asia-Pacific including six in China, one in Australia and one in Singapore; two in Europe including one in France and one in the Czech Republic; and the five stores in the U.A.E. The company currently operates 275 stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and five in the U.A.E.), compared with 247 stores a year ago.

Tiffany’s other financial highlights:

* Gross margins (gross profit as a percentage of net sales) of 59.1 percent in the fourth quarter and 57 percent for the full year were below margins of 60.4 percent and 59 percent in the respective prior-year periods. The declines largely reflected pressures from precious metal and diamond costs; a shift in sales mix toward higher-priced, lower margin products; and reduced sales leverage on fixed costs.

* SG&A (selling, general and administrative) expenses increased 2 percent in the fourth quarter. In the full year, SG&A expenses increased 2 percent; however, if nonrecurring costs related to the 2011 relocation of Tiffany's New York headquarters staff were excluded, SG&A expense would have increased 5 percent (see "Non-GAAP Measures" schedule) in the full year due to store occupancy costs related to new and existing stores, increased marketing spending and higher labor costs.

* Other expenses, net were $14 million and $54 million in the fourth quarter and full year, compared with $13 million and $43 million in the respective prior-year periods. Increased average borrowing levels have resulted in higher interest expense in both periods.

* Net inventories of $2.2 billion at January 31 were 8 percent higher than the prior year-end, reflecting 13 percent growth in finished goods inventory and 2 percent growth in combined raw materials and work-in-process, all to support new store openings and expanded product assortments.

* Capital expenditures of $220 million in 2012 were modestly lower than $239 million in the prior year; 2011 had included expenditures for the relocation of Tiffany's headquarters staff.

* In the full year, the company spent $54 million to repurchase approximately 813,000 shares of its Common Stock at an average cost of $66.54 per share, but did not repurchase shares in the fourth quarter. Approximately $164 million remains available for repurchases under the currently authorized program which expires in January 2014.

In its outlook, the company expects worldwide net sales to grow 6 percent to 8 percent in U.S dollars. On a constant-exchange-rate basis, an expected high-single-digit percentage increase in worldwide net sales includes sales growth in all regions, ranging from a mid-teens percentage increase in Asia-Pacific to a low-single-digit increase in Japan.

The company said it plans to open 15 new company-operated stores including five in the Americas, seven in Asia-Pacific, three in Europe; while closing one in Japan. It also plans  and to refurbish a number of existing locations around the world.

It expects net earnings from operations increasing 6 percent to 9 percent to a range of $3.43-$3.53 per diluted share. Net earnings from operations are expected to decline approximately 15 percent- 20 percent in the first quarter due to gross margin pressure and higher marketing-related costs, to be followed by earnings growth in all subsequent quarters. In addition, this forecast excludes $0.05 per diluted share of expected first quarter charges for staffing and occupancy adjustments.


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Tiffany to Pay Elsa Peretti Up to $436 Million Over 20 Years, Maybe More

Variations of the Elsa Peretti “Sevillana” pendant on the Tiffany website.

Since 1974, Tiffany & Co. and Elsa Peretti enjoyed what is arguably the most successful affiliation ever between a retail jeweler and a jewelry designer. The value of that relationship was put to the test in 2012 when Tiffany announced in May that the partnership was in danger of ending.

Peretti jewelry and other branded products accounted for 10 percent of Tiffany’s total net sales for the past three years, the jeweler recently said. Tiffany’s net sales totaled $3.6 billion in 2011, which would mean that sales of Peretti pieces totaled $360 million for the same period. If Tiffany were to lose this business it would have created a huge sales hole that would be difficult to fill—particularly during a time when consumers have become much more cautious of their discretionary spending. In addition, for Peretti, 72, it would be difficult for her to find another partner with the reputation and international reach of Tiffany.

So last week they struck a 20-year deal. It included a strengthening of the termination clauses in the agreement, which were rather loose for both parties. But the main portion of the agreement dealt with finances and from the looks of it Tiffany very much wanted Peretti to stay, according to a document filed with the U.S. Securities and Exchange Commission.

The main component of the financial agreement is that Tiffany will pay Peretti 5 percent of total net sales of Peretti jewelry and other branded objects. In 2011, that would have amounted to $18 million. If sales remained flat during the 20-year life of the agreement, this would amount to $360 million, similar to the total of Peretti sales in 2011. However, with modest increases of less than 5 percent, this could easily add another $20 million over the life of the contract.

As part of the agreement, on December 31, 2012, Tiffany paid a one-time fee of more than $47.2 million to Peretti (no less than $40 million after taxes). In addition, Peretti, 72, will receive a basic annual royalty fee of $450,000 for use of Peretti Intellectual Property ($9 million dollars over 20 years). The one-time payment does not reduce future royalties.

So a conservative estimate of the grand total over the life of the contract, including the modest forecast of annual growth per year of Peretti sales, is $436.2 million.

There are other parts of the contract, according to the SEC document, that will add to Tiffany’s financial commitment and may earn additional money for Peretti. This includes the following:

* An increase in non-jewelry, Peretti-licensed products that Tiffany will sell. In the prior 60 months, that amounted to $4 million in net sales.

* A 100 percent increase (in cost) in the amount of “on-hand and on-order” Peretti-licensed objects in Tiffany’s inventory.

* Peretti will receive an additional 2 percent of net sales of Peretti branded objects for fees in respect of certain quality control services that the designer has committed to in the agreement.

* At least every five years, Tiffany agreed to publish a special catalog or folio of Peretti products that is representative of the full collection of Peretti products being offered for sale by Tiffany.

* Tiffany will expand the content of its website to include a special section containing content regarding Peretti and Peretti products, including narrative and visual information regarding the craftsmanship and the creation of Peretti products.

* Promotional expenses paid by Tiffany equal to at least 2.6 percent of net Peretti sales.

* Under the agreement, Peretti isn’t obligated to make promotional appearances on behalf of Tiffany. However, if she did make an appearance, the luxury jeweler will pay round-trip, first-class air transportation (including to and from Europe) and first-class hotel accommodations for Peretti and another person.

* Tiffany will establish retail prices for Peretti products in accordance with its usual practices. However, under the agreement, Tiffany may reduce retail prices by 20 percent in order to achieve an overall average gross margin for Peretti objects of no greater than 50 percent.

* Peretti products will not be subject to advertised promotional pricing or inventory liquidation events.

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Diamond Empowerment Fund to Honor Tiffany & Co. and Leo Schachter

Global luxury jeweler Tiffany & Co. and Leo Schachter Diamonds will be honored for global leadership in helping empower people in Africa, at the second annual GOOD Awards on January 10, 2013.

The GOOD Awards, established by the Diamond Empowerment Fund in 2012, are the highest awards to recognize individuals and corporations in the diamond and jewelry industry for outstanding leadership in the areas of good corporate citizenship, sustainability, and promoting opportunity in Africa.

Tiffany & Co. has been in the forefront of promoting business practices and programs that benefit communities in which diamonds are sourced. Tiffany’s work in Botswana and other diamond producing countries highlights one of the many ways the company demonstrates accountability through best business practices resulting in employment, infrastructure improvements, and ultimately the empowerment of people in that region.

Leo Schachter Diamonds was one of the first diamond companies to establish a cutting factory in Botswana, employing hundreds of locals. In addition, Elliot Tannenbaum, principal of Leo Schachter Diamonds, in partnership with the government of Botswana, helped to establish the Botswana Top Achievers Program, a DEF beneficiary, that funds top students from the nation to study at the university of their choice worldwide.

Additional honorees will be announced soon. For more information on tickets, journal ads and sponsorship packages please visit www.goodawards.org.

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The Jewelry Industry is Better Prepared to Handle a Downturn

The opening day crowd during the 2011 JCK Las Vegas tradeshow held at Mandalay Bay. Photo credit: Anthony DeMarco

Not since 2009 has the global economy and the jewelry industry’s place in it been so unstable. This comes as the international jewelry industry descends on Las Vegas for a series of tradeshows beginning Monday (led by JCK Las Vegas at Mandalay Bay and The Couture Show at the Wynn Las Vegas) where retailers will purchase their inventory for the all-important holiday season. It’s one of the largest jewelry trade events on the global calendar and it will be a real test on whether the U.S. jewelry industry can withstand the latest onslaught of mixed economic news.

I think the jewelry industry will prevail. The industry itself has done little to exacerbate the fragile global economic situation. In fact, it has performed admirably during these difficult economic times—outside of the diamond industry with its mishandling of the Zimbabwe human rights issue and now diamond grading scandals at two labs. 

After the contraction of the U.S. jewelry industry in 2009, it has been posting mostly positive numbers and showing consistent, incremental growth. Unlike the banking industry, it has learned from its mistakes. The jewelry industry is not as leveraged as it was in 2008. It is doing better at using the Internet and social media instead of treating it as the enemy. Creativity has taken over as well. As the cost of materials increased, designers and manufacturers have created objects of adornment using more color, a variety of materials and high-quality craftsmanship. The jewelry industry as a whole is a smarter and more humble industry than it was prior to 2008.

However, it must get past an economic situation that is again rising to a boil led by two factors that just won’t go away: Wall Street’s reckless behavior and its defiant stance against any regulation; and the Euro crisis.

The Facebook IPO debacle managed by Morgan Stanley and JPMorgan Chase’s $2 billion-plus trading loss by taking large positions in credit default swaps show that Wall Street has learned nothing from the 2008 financial crisis that nearly took down the world economy.

Meanwhile, the end of the Euro or at least a serious contraction of the European Union now seems a possibility. Greece is on the brink of outright rejecting the monetary union and other countries are saddled with outrageous debt that member countries seem unable or unwilling to resolve. There are an endless number of theories as to what will happen if the Union disbands or shrinks, which tells me that no one really knows what will happen. But everyone in Europe seems to be scared.

The jewelry industry has its own challenges and victories, some of which were revealed this week. Among them:

* Tiffany & Co., the luxury retailer jeweler that has performed like a juggernaut throughout this recession, downgraded its outlook Thursday based on a softening of sales in the U.S. and abroad.

* Meanwhile, it’s the mid-market jewelers that are showing resiliency. Signet Jewelers, the largest specialty retail jeweler in the U.S. and U.K., whose brands include Kay and Jared, reported modest growth in the first quarter Thursday (sales up 1.4 and comps up 1.2 percent). Zale Corp., the long-struggling North American specialty retail jeweler, showed significant growth in its first quarter report Wednesday (8 percent increase in sales and comps).

* Online jewelry and diamond retailer, Blue Nile, reported a 3.6 percent first quarter increase in sales. However, lower markups led to a 9.7 percent decline in gross profits.

* The Swiss watch industry, which appeared invincible throughout the recession, is reporting that its phenomenal growth is slowing to just robust levels. Watch exports increased 9 percent in April, down from 16.1 percent for the first four months of the year, according to the Swiss Federal Customs Office.

* However, the large luxury conglomerates are still poised for strong growth throughout the world. For example, LVMH reported that its Watch & Jewellery division sales increased by 141 percent increase, year-over-year, to $826.6 million. This is misleading as LVMH acquired Italian luxury jewelry house, Bulgari, in March 2011. Excluding the Bulgari acquisition, sales increased 17 percent. Richemont, reported that jewelry and watch sales rose 32 percent for the year, with overall sales in the Americas up 26 percent.

Despite the uncertainty, I expect to see a positive environment and exciting new jewelry designs at the tradeshows. Most importantly, I anticipate business to be strong. Unlike 2008, the industry is better prepared today to meet these challenges.

Tiffany Q1 Sales Up 8%, Comps Up 4%; Downgrades Outlooks

Tiffany & Co. said Thursday worldwide net sales increased 8 percent, year-over-year, to $819 million and same store sales rose 4 percent for the first quarter of 2012. The luxury retail jeweler also downgraded its outlook for the year based on a softening of sales in the U.S. and abroad.

Net earnings in the period, ended April 30, for the New York-based company increased 1 percent to $82 million, or $0.64 per diluted share, compared with $81 million, or $0.63 per diluted share, for the same period in 2011. Net earnings in the first quarter of 2011 had been reduced by $0.04 per diluted share for nonrecurring items related to the relocation of Tiffany's New York headquarters staff. Excluding those items, net earnings in the first quarter of 2012 declined 5 percent from last year.

“In terms of our sales for the first quarter, regions outside the Americas performed generally as expected,” said Michael J. Kowalski, chairman and chief executive officer. “However, the Americas region underperformed, continuing a soft trend that began in the last quarter of 2011 and compounded by the difficult comparison to substantial sales growth in last year's first quarter. These sales results led to net earnings modestly trailing our expectations.”

Net sales by region are as follows:

* In the Americas region, sales rose 3 percent to $386 million. On a constant-exchange-rate basis, total Americas sales rose 3 percent and comparable store sales were flat (comparable branch store sales increased 1 percent and sales in the New York flagship store declined 4 percent) on top of a 17 percent increase in comparable store sales in last year's first quarter. Combined Internet and catalog sales in the Americas increased 1percent. The Americas region represents slightly less than half of worldwide sales.

* Sales in the Asia-Pacific region increased 17 percent to $195 million. On a constant-exchange-rate basis, total sales rose 16 percent, while comparable store sales rose 10 percent (on top of 26 percent comparable store sales growth in last year's first quarter) due to increased sales in most countries.

* In Japan, sales rose 15 percent to $142 million. On a constant-exchange-rate basis, total sales and comparable store sales rose 13 percent and 12 percent, respectively; comparable store sales had declined 3 percent in last year's first quarter.

* Sales in Europe increased 3 percent to $88 million. On a constant-exchange-rate basis, total sales rose 7 percent while comparable store sales were equal to the prior year (versus 15 percent comparable store sales growth in last year's first quarter) with no meaningful difference between the U.K. and overall continental Europe.

* Other sales declined 14 percent to $9 million due to lower wholesale sales of finished products to independent distributors.

“We are updating our forecast for the full year to reflect these first quarter results and to reflect lower near-term expectations,” Kowalski said. “Although we are very early into the second quarter, worldwide sales are currently increasing by a low-single-digit percentage, reflecting difficult year-over-year comparisons and decelerating rates of economic growth in many countries. In 2011, we achieved extremely strong sales growth in the second and third quarters, especially in the Americas and Asia-Pacific regions.”

The company now expects worldwide net sales (in U.S. dollars) to increase 7-8 percent, versus the previous forecast calling for 10 percent growth with its operating margin modestly below the prior year.

The company also is forecasting net earnings per diluted share in a range of $3.70 - $3.80. This compares with the previous forecast of $3.95 - $4.05 per diluted share; approximately $0.20 of the decrease is tied to a reduction in operating expectations and $0.05 is related to the additional debt incurrence. All of the annual earnings growth over 2011 is expected to occur in the fourth quarter, with net earnings in the second and third quarters expected to be below last year.

The company opened four stores in the first quarter: in Mexico City, Montreal, Salt Lake City and Wuhan, China. It now operates 251 stores (105 in the Americas, 59 in Asia-Pacific, 55 in Japan and 32 in Europe), compared with 232 stores a year ago. For the year, Tiffany plans to add 24 company-operated stores including nine in the Americas, eight in Asia-Pacific, two in Europe, and commencing operation of five stores in the United Arab Emirates.

Other financial highlights for the first quarter of 2012:

* Gross margin (gross profit as a percentage of net sales) declined to 57.3 percent in the first quarter, from 58.3 percent a year ago, due to higher product acquisition costs.

* SG&A (selling, general and administrative) expenses increased 9 percent in the first quarter. Excluding nonrecurring costs related to the relocation of Tiffany's New York headquarters staff in 2011, SG&A expenses increased 11 percent primarily due to increased labor, store occupancy and marketing costs.

* The effective income tax rate was 34.5% in the quarter, versus 35.6 percent a year ago.

* Net inventories increased 27 percent to $2.2 billion at April 30, 2012 from $1.7 billion a year ago. Finished goods inventories increased 16% year-over-year due to higher product acquisition costs, expanded product assortments and new store openings, as well as some effect from the lower-than-expected sales growth. A 44 percent increase in raw material and work-in-process inventories reflected higher product acquisition costs, expanded rough diamond sourcing and internal manufacturing.

* Capital expenditures were $44 million in the first quarter, versus $52 million a year ago.

* The company spent $46 million in the first quarter to repurchase approximately 700,000 shares at an average cost of $66.42 per share. At April 30, 2012 there was $171 million available for future repurchases under the currently authorized share repurchase plan which expires in January 2013.

* Cash and cash equivalents and short-term investments totaled $343 million at April 30, 2012, compared with $622 million a year ago. Short-term and long-term debt totaled $834 million at April 30, 2012 and represented 35% of stockholders' equity, compared with $687 million and 30% a year ago.

Last week, the company's board of directors approved a 10 percent increase in the quarterly dividend rate, marking the 11th increase in the past 10 years.

Tiffany Restructures its U.A.E. Retail Operation

Tiffany & Co. has taken control of its destiny in the United Arab Emirates by restructuring its joint agreement with retailer Damas Jewellery.

Damas, based in the U.A.E., is an international jewelry and watch retailer. Under the new partnership agreement between the two companies, all of operational, merchandising and sales, and marketing management for the five Tiffany & Co. stores in the U.A.E. will be transferred from Damas to Tiffany. Previously, Tiffany sold its merchandise, on a wholesale basis, to Damas which operated the Tiffany & Co. stores.

The move was reportedly related to Damas’ delisting from Nasdaq Dubai after shareholders agreed to a buyout bid from a consortium of private investors.

Under the new joint venture, the new entity will be incorporated in the U.A.E as TCO Damas Associates L.L.C.

“This restructuring of our retail presence in the U.A.E. through this joint venture with Damas allows us, for the first time, to wholly manage Tiffany's operational activities,” said Laurent Cathala, Tiffany's VP of Emerging Markets. “It underscores the importance of the U.A.E. market to our global expansion strategy and highlights our optimism about the long-term growth potential we see throughout the Middle East.”

Tiffany also announced the appointment of Stephane de Palmas as general manager of the new U.A.E. retail operation. The 46-year-old luxury retail veteran will be responsible for the overall management of the Tiffany & Co. stores in Dubai and Abu Dhabi.