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Tiffany & Company (TIF - Analyst Report) posted lower-than-expected first-quarter 2012 results. The quarterly earnings of 64 cents a share missed the Zacks Consensus Estimate of 69 cents, and dropped from 67 cents earned in the prior-year quarter. The disappointing bottom-line result was a reflection of dismal performance in the Americas region due to soft demand for jewelry.

Despite registering a growth in the top line, the company witnessed a drop in the bottom line due to a 10% rise in the cost of sales and an 11% increase in selling, general and administrative expenses. Given the weaker-than-expected results and sluggish economic recovery in most of the countries, management trimmed its fiscal 2012 outlook.

On a reported basis, including one-time items, earnings inched up 1% to 64 cents a share from 63 cents delivered in the year-ago period. The prior-year quarter earnings included headquarters relocation costs of 4 cents.  

Let’s Unveil the Picture

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Snapshot Report) and Zale Corporation , posted net sales of $819.2 million during the quarter, up 8% from the prior-year quarter, on the heels of healthy performance of stores in the Asia-Pacific and Japan regions, comparable-store sales growth and new collection launches.

Total revenue came ahead of the Zacks Consensus Estimate of $818 million. Comparable-store sales climbed 4% in the quarter under review. In constant currencies, net sales jumped 8% and comps grew 4%.

By geographic segment, sales in the Americas grew 3% to $386 million, whereas comps fell 1% during the quarter; sales in the Asia-Pacific region surged 17% to $195 million and comps increased 11%; sales in Japan jumped 15% to $142 million and comps also grew by 15%; and sales in Europe climbed 3% to $88 million but comps dropped by 4%.

Other sales tumbled 14% to $9 million, reflecting a fall in the wholesale sales of end goods to independent distributors.

Gross profit for the quarter jumped 6% to $469 million; however, gross margin contracted 100 basis points to 57.3%.

Stores Update

Tiffany opened 4 outlets during the quarter. The company plans to add 24 stores in fiscal 2012 with 9 in the Americas, 8 in Asia-Pacific, 2 in Europe and 5 in the United Arab Emirates (marking the commencement of operations in the region).

As of April 30, 2012, the company operated 251 stores (105 in the Americas, 59 in Asia-Pacific, 55 in Japan and 32 in Europe).

Other Financial Details

Tiffany repurchased about 700,000 shares at $66.42 each, aggregating $46 million during the quarter.

In January 2011, Tiffany announced a new share repurchase program, overriding the previous program. The new program, which is set to expire on January 31, 2013, authorizes the company to buy back up to $400 million in shares. As of April 30, 2012, the company has approximately $171 million at its disposal for future buybacks.

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $343 million, and total short-term and long-term debt of $834.4 million, reflecting 35% of shareholders’ equity compared with 30% in the prior-year. Capital expenditures for the quarter were $44 million.

Tiffany recently raised its quarterly dividend by 10%. This is the 11th time the company has hiked its dividend in the last 10 years. The board approved an increase in annual dividend to $1.28 per share (or 32 cents quarterly) from $1.16 (or 29 cents quarterly). The increased dividend is slated to be paid on July 10, 2012, to shareholders of record as of June 20.

Guidance

Tiffany, a high-end jewelry designer, manufacturer and retailer, lowered its fiscal 2012 guidance. The company now projects earnings in the range of $3.70 to $3.80 per share, down from $3.95 to $4.05 forecasted earlier.

The current Zacks Consensus Estimate for fiscal 2012 is $3.98 per share, falling short of management’s guidance range. Consequently, we could witness a correction in the Zacks Consensus Estimates in the coming days, with analysts revising their estimates to better align with the earnings outlook.

Tiffany now expects total net sales growth of 7% to 8% for fiscal 2012, down from 10% predicted previously.

Management anticipates capital expenditures of approximately $240 million for the year.

Holds Zacks #3 Rank

Currently, Tiffany holds a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, we have a long-term Neutral recommendation on the stock.

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