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Tiffany (TIF) Beats on Q1 Earnings, Sales Miss, View Intact

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Tiffany & Co. posted fourth straight quarter of positive earnings surprise, when it reported first-quarter fiscal 2017 results. This designer and retailer of fine jewelry posted quarterly earnings of 74 cents a share that beat the Zacks Consensus Estimate of 70 cents and improved 7% from the year-ago period on account of higher operating margin.

Net sales came in at $899.6 million, up 1% from $891.3 million recorded in the prior-year quarter but fell short of the Zacks Consensus Estimate of $916 million. Sturdy sales performance in Asia-Pacific was offset by softness witnessed in the Japan, Americas and Europe. Comparable-store sales (comps) declined 3%. In constant currencies, worldwide net sales jumped 2%, while comps decreased by an equivalent rate.

Shares are down roughly 5% during the pre-market trading hours. However, Tiffany has outperformed the Zacks categorized industry in the past six months. In the said period, the stock has increased 19.1%, while the Retail-Jewelry Stores industry has declined 4%. The company’s omni-channel platform, store expansion programs, tapping of new markets and venturing into new revenue generating avenues has facilitated it to outpace the industry.

Let’s Delve Deep

By geographic segments, sales in the Americas fell 3% to $392 million, while comps declined by 4%. Sales in the Asia-Pacific region rose 8% to $257 million, while comps fell 3%. Sales in Japan slipped 2% to $128 million and comps fell by 1%, and sales in Europe came in at $94 million, down 3%, while comps also decreased by a similar rate. Other sales came in at $28 million, up 32%, while comps grew 1%.

Gross margin expanded 80 basis points to 62% during the quarter on account of favorable product input costs and high margin fashion jewelry products, partially offset by rise in wholesale sales of diamonds. Operating margin increased 110 basis points to 16.2%.

Store Update

Tiffany did not open any stores, instead shuttered three locations during the quarter. As of Apr 30, 2017, the company operated 310 stores (124 in the Americas, 84 in Asia-Pacific, 54 in Japan, 43 in Europe, and five in the U.A.E.). Management now anticipates gross retail square footage growth of 2% via 10 openings, seven relocations and seven closings.

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $960 million, and total short-term and long-term debt of $1,071.1 million, reflecting 35% of shareholders equity.

During the quarter, the company repurchased approximately 123,000 shares at an average cost of about $93 per share. As of Apr 30, 2017, the company had $299 million remaining under its $500 million buyback program that run through Jan 31, 2019. Management anticipates capital expenditures of $250 million and expects to generate free cash flow of approximately $450 million during fiscal 2017.

Tiffany & Co. Price, Consensus and EPS Surprise

 

Tiffany & Co. Price, Consensus and EPS Surprise | Tiffany & Co. Quote

Guidance

Management now anticipates fiscal 2017 earnings per share to increase by a high-single-digit percentage from fiscal 2016 earnings of $3.55. However, it expects earnings to jump mid-single-digit-percentage over adjusted earnings of $3.75 per share reported in fiscal 2016. Tiffany now envisions fiscal year net sales to increase by a low-single-digit percentage on a reported and constant-exchange-rate basis.

Zacks Rank

Tiffany currently carries a Zacks Rank #3 (Hold). Investors may consider better-ranked stocks such as Best Buy Co., Inc. (BBY - Free Report) , Burlington Stores, Inc. (BURL - Free Report) and Ulta Beauty, Inc. (ULTA - Free Report) , each of them carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Best Buy delivered an average positive earnings surprise of 27.7% over the trailing four quarters and has a long-term earnings growth rate of 10.8%.

Burlington Stores delivered an average positive earnings surprise of 26.3% over the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Ulta Beauty Stores delivered an average positive earnings surprise of 5.7% over the trailing four quarters and has a long-term earnings growth rate of 19.5%.

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