Tiffany Posts An Optimistic Quarter, Though Numbers Grossly Miss Estimates

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Dec 01, 2014

The second-largest luxury jewelry retailer around the globe, Tiffany & Co. (TIF, Financial), reported its third-quarter earnings on November 25, declaring a set of decent numbers that drove the stock higher on the NYSE creating a new 52-week high of $110.60 in the early trading session after the results were out. The top and bottom line numbers did show shows signs of weakness falling short of the Street expectations, but even then investors did not seem to disregard the stock leading to the brisk upsurge noticed in the company’s stock. Let’s dive into the number mix to derive the major highlights of the third quarter of Tiffany’s which aids to keep the stock lucrative enough amid the miss in meeting analysts’ expectations.

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Same store sales keep growing

Revenue came in at $959.6 million in the quarter, improving 5% from the year-ago period but falling slightly shy of analysts’ $970 million forecast. However, the same-store sales grew 4% worldwide on a constant currency basis, beating the 3.7% average increase that analysts polled by research firm Consensus Metrix had estimated. Regionwise, comparable store sales showed an upsurge almost in every part of the world except Japan where the consumption tax hike took a toll on the regional sales for the quarter.

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In North America, the improvement of same store sales was around 11% leading to total sales increase of 10% during the quarter standing at $459 million, which represented around half of the overall revenue generated for the quarter. In the Asia Pacific region, comparable store sales declined 3% in the quarter mainly due to poor performance in certain markets, but sales still rose 2% to $243 million in the quarter driven by brisk growth in sales in mainland China that mostly offset the mixed performance across other markets. The worst performance was observed in Japan where consumer spending has shown a steep decline after the consumption tax rate was hiked on April 1 of the year thus driving the net sales down by 12% to $113 million from the year-earlier period. In Europe, strong comparable store sales were witnessed in the quarter that improved the total sales in the region up by 9% t0 $114 million on a year-over-year basis.

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The company’s new jewelry lines, such as the Atlas Collection that sells gold and silver lariats, rings and pendants and the Tiffany T collection that features trendy bracelets, necklaces and rings made of silver, traditional gold and white and rose gold saw a huge popularity among customers across regions during the quarter.

CEO Michael J. Kowalski stated during the earnings call, “We were pleased with overall sales performance, especially in light of economic and geopolitical challenges around the world. We continue to pursue exciting opportunities in marketing, merchandising and store expansion to support longer-term growth and are especially encouraged with initial results from the recent launch of our TIFFANY T jewelry collection."

Margins rise substantially, but management casts a cautious outlook

Though comparable store sales showed remarkable improvement, the net income declined 60% to $38 million, or $0.29 a share, from $95 million, or $0.73 a share, in last year’s third quarter. This was attributed to the pre-tax loss of $94 million recorded during the quarter on the eradication of debt related to prepayment of $400 million of long-term debt in the quarter. However, barring the loss, net earnings rose about 5% to $99 million, or $0.76 a share, led by sales growth and higher gross margins achieved during the quarter. But the earnings still missed the $0.78 a share estimated through the Wall Street consensus.

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Tiffany’s gross margins rose to 59.5% from 57% reported a year-ago, due to higher prices and better sales of higher-margin gold items in its fashion jewelry lines.

Such a solid but mixed performance in the quarter has added a sense of caution in the management tone, and now the company expects sales to grow by a mid-to-high single digit percentage for the year ending January 31, compared with the prior forecast for high-single digit growth.

Investors remain well-rewarded

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In a separate statement released on the day of the third-quarter results, Tiffany also declared a $0.38 a share dividend that is likely to be paid on January 12 to shareholders of record as of December 22. Also, as per the share repurchase program approved around March of this year, the company has $278 million remaining in the $300 million share-repurchase scheme. Hence, investors seem delighted with the results in hand, and the stock has not been punished by investors; it is already up 16% year to date. Remarkably, as investors are being rewarded by the retailer, shares of Tiffany popped and at one point in the early trading session were more than 4% up after the earnings release.

Final word

Tiffany did post a good set of numbers, and the investors are still optimistic on the company even after the management cast a cautious sales guidance for the full year citing the strength of the dollar. With the retailer’s new collections doing extremely well in North America as well as in international markets, it can be concluded that Tiffany is on a high-track growth trajectory in terms of comparable store sales which is all-shining for the luxury jewelry retailer and could possibly show continued uptrend in the coming quarters. So, let’s stay tuned!