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Tiffany (TIF) Q2 Earnings Beat, Sales Miss; View Intact

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After commencing fiscal 2016 on a soft note, Tiffany & Co. (TIF - Free Report) made a sharp comeback with better-than-expected bottom-line results in the second quarter, in spite of waning top line. Higher gross margin, lower selling, general and administrative expenses, and share repurchase activity did provide cushion to the bottom line, but failed to curb the year-over-year decline. Management kept its fiscal 2016 guidance intact. Shares are up 4.5% during pre-market trading hours.

This designer and retailer of fine jewelry posted quarterly earnings of 84 cents a share that beat the Zacks Consensus Estimate of 71 cents but declined 2% from 86 cents posted in the year-ago period.

Net sales came in at $931.6 million, down 6% from $990.5 million recorded in the prior-year quarter, and also below the Zacks Consensus Estimate of $933 million. The decline in net sales was due to lower spending by both local customers and foreign tourists. Comparable-store sales (comps) declined 8%. In constant currencies too, net sales and comps fell 6% and 9%, respectively.

By geographic segments, sales in the Americas fell 9% to $434 million, while comps also declined at an equivalent rate. Sales in the Asia-Pacific region declined 6% to $230 million, and comps plunged 12%. Sales in Japan jumped 10% to $138 million and comps rose by 13%, while sales in Europe came in at $111 million, down 12%, and comps decreased 17%. Other region sales came in at $18 million, down 3%, while comps declined 22%.

In constant currencies, total sales and comps in the Americas fell 8% and 9%, respectively, from the year-ago quarter. Sales in the Asia-Pacific region decreased 3%, while comps declined 9%. Sales in Japan fell 5%, while comps slid 3%. Sales fell 8%, while comps declined 13% in Europe.

Gross margin expanded 200 basis points to 61.9% during the quarter on the back of favorable product input expenses, shift in sales mix and increase in price. Operating margin increased 40 basis points to 18.8%.

Store Update

During the quarter, Tiffany opened 4 company-operated outlets and shuttered 1 location. As of Jul 31, 2016, the company operated 311 stores (125 in the Americas, 83 in Asia-Pacific, 55 in Japan, 43 in Europe, and 5 in the U.A.E.). Management now anticipates gross retail square footage growth of 2% via 11 openings, 6 relocations and 9 closings.

TIFFANY & CO Price, Consensus and EPS Surprise

TIFFANY & CO Price, Consensus and EPS Surprise | TIFFANY & CO Quote

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents, and short-term investments of $720.1 million, and total short-term and long-term debt of $1,092.4 million, reflecting 37% of shareholders equity. Capital expenditures of $101 million were incurred during the first half of fiscal 2016.

During the quarter, the company repurchased approximately 1.1 million shares at an average cost of about $63 per share. As of Jul 31, 2016, the company had $344 million remaining under its $500 million buyback program that runs through Jan 31, 2019.

Management anticipates capital expenditures of $260 million and expects to generate free cash flow of at least $400 million during fiscal 2016.

Guidance

Management continues to anticipate fiscal 2016 earnings per share to decrease by a mid-single-digit percentage from the prior year. Tiffany also reaffirmed that it expects fiscal 2016 worldwide net sales to decrease by a low-single-digit percentage.

Zacks Rank

Tiffany currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. (AEO - Free Report) , Citi Trends, Inc. and L Brands, Inc. (LB - Free Report) , all carrying a Zacks Rank #2 (Buy).

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