Tiffany & Co. (TIF, Financial) revealed its fourth quarter earnings for fiscal 2014, with a 4% slump in same-store sales being a major factor of concern for investors. The company, which competes with Zale Corporation (ZLC, Financial) among others in the specialty retail industry and Blue Nile Inc. (NILE, Financial) in the consumer discretionary sector, attributed the mixed set of numbers to the strong dollar as well as weak demand in the Japanese market. Although the high-end jewelry maker reported earnings of $1.51 a share for the quarter which was in line with analysts' expectations, Tiffany’s weak guidance for fiscal 2015 sent its shares dipping 3.98% to $82.93 at closing bell.
Strong dollar rubs off shine from revenues
Tiffany’s net earnings for the fourth quarter of fiscal 2014 came in at $196.2 million, on revenues of $1.29 billion. Revenues, which were down 1% year over year, also missed the consensus estimate of $1.31 billion, primarily due to negative foreign currency headwinds and a sluggish market in Japan and the Americas. While the company logged a 3% rise in net sales on a constant currency basis on the back of growth in Europe and Asia-Pacific, comparable-store sales remained flat year over year. Tiffany’s gross margin for the quarter expanded 30 basis points to 60.8% on the back of increase in prices, reduced product costs and a profitable sales mix. At the same time, the company’s operating margin shrunk 40 basis points to 23.7%.
Regionwise, Tiffany saw a 1% decline in sales in the Americas to $653 million, with comparable-store sales dropping by 2%, while sales in Japan fell 13% to $148 million and comparable-store sales plunging 18% year-over-year. In Europe, the company saw flat sales at $162 million, while comparable-store sales dropped 4%. On the up side, the company’s sales in the Asia-Pacific grew 4% to $284 million, while comparable-store sales remained flat compared to the year-ago quarter. Concurrently, sales in Other Regions climbed 12% to $39 million, although comparable-store sales tumbled 8%.
For the full fiscal 2014, Tiffany saw global net sales rising 5% to $4.25 billion compared to $4.03 billion in FY2013. While worldwide comparable-store sales increased 4% on a constant currency basis, the figure dipped 2% compared to fiscal 2013 when the impact of currency fluctuations is taken into account. The company logged earnings of $484 million or $3.73 per diluted share, up from the previous fiscal’s $181 million or $1.41 per diluted share. Tiffany opened 8 new stores in FY2014 and shut down two company-operated stores, taking the overall company-operated store count to 295 stores across the globe.
Outlook for 2015
Tiffany also presented its outlook for fiscal 2015, when the company plans to open net 12-15 company-operated stores across the globe, with a major number of new stores being planned in the Asia-Pacific region. The company foresees very little earnings growth during fiscal 2015 over the $4.20 per share earned in 2014. This includes an around 30% decline in net earnings during Q1 2015 and a modest decline in Q2. However, the company expects to reverse the downward trend from the third quarter, with a double-digit percentage growth in net earnings being projected for the third and fourth quarters. Tiffany also projected total net sales growth in the mid-single-digit percentage for fiscal 2015 on a constant-currency basis. However, in the dollar terms, sales are likely to grow in low-single-digit.
Tiffany repurchased shares worth $5 million in the fourth quarter, taking the company’s total repurchase to shares worth $27 million. Consequently, the company has the option of buying back shares worth $273 million before March 2017 under its $300 million share buyback program.
Final thoughts
Tiffany’s declining sales indicates that the company is grappling with global economic uncertainties, with a strong U.S. dollar affecting the translation of foreign-denominated sales into dollars as well as foreign tourist spending in the U.S. For instance, the strong dollar and consequent cut back in foreign tourism in the city are significantly hurting sales at the company’s flagship New York store. The company’s downbeat forecast to 2015 and a disappointing return on equity are also a concern for investors. At the same time, experts foresee Tiffany’s earnings growing at an average annual rate of 11%-12.5% over the next five years, although earnings are expected to drop considerably for fiscal 2015. Consequently, although sceptics believe it is time to sell the company’s shares, the Tiffany stock currently carries a "hold" guidance for the mid to long-term.
