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Tiffany (TIF) Q1 Earnings Surpass Estimates, Decline Y/Y

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Tiffany & Co. (TIF - Free Report) reported first-quarter fiscal 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate. However, the top line fell short of the consensus mark for the third successive quarter. Moreover, both net sales and earnings per share decreased year over year. Results were significantly impacted by lower spending by foreign tourists.

The company also became more conservative on its fiscal 2019 earnings view. Further, management informed that tariffs will increase from its current levels to 25% on average on jewelry that Tiffany exports to China from the United States.

Meanwhile, shares of this Zacks Rank #3 (Hold) company are up roughly 2% during the pre-market trading session. We note that the stock has fallen 1.3% in the past three months compared with the industry’s decline of 8%.

Q1 Highlights

The company reported quarterly earnings of $1.03 per share that beat the Zacks Consensus Estimate by a couple of cents but fell roughly 10% year over year. Lower net sales and increased SG&A expenses hurt the company’s quarterly earnings, while lower effective tax rate and share repurchase activity favorably impacted the same.

Net sales came in at $1,003.1 million, down 3% from $1,033.2 million in the prior-year quarter. The reported figure came below the Zacks Consensus Estimate of $1,019.4 million. Also, the company’s comparable sales (comps) declined 5%. In constant currencies, worldwide net sales were equal to the prior year, while comps fell 2%.

Sales across Jewelry Collections grew 1%. On the contrary, sales across Engagement Jewelry and Designer Jewelry declined 6% and 14%, respectively.

Nevertheless, Tiffany remains focused on evolving its brand, enhancing omni-channel experience, solidifying position in core markets, increasing operating model efficiency and enriching overall organization. The company remains committed to elevating in-store experience and replenishing product portfolio.

Tiffany & Co. Price, Consensus and EPS Surprise

 

Tiffany & Co. Price, Consensus and EPS Surprise

Tiffany & Co. price-consensus-eps-surprise-chart | Tiffany & Co. Quote

Let’s Delve Deeper

By geographic segments, sales in the Americas fell 4% to $406 million, while comps declined 5%. In the Asia-Pacific region, sales slid 1% to $324 million, while comps tumbled 5%. In Japan, sales decreased 4% to $145 million, while comps fell 4%. Sales in Europe came in at $102 million, down 4%, while comps fell 7%. Other net sales came in at $26 million, up 17%, whereas comps plunged 17%.

Gross margin contracted 130 basis points to 61.7% in the quarter under review on account of sales deleverage on fixed costs, changes in sales mix toward higher price point jewelry, and rise in wholesale sales of diamonds. This was partially offset by fall in product related costs.

Operating margin shrunk 380 basis points to 16%, thanks to increased SG&A expenses. For fiscal 2019, management expects operating margin to be equal to or marginally above from the year-ago level.

SG&A expenses rose 3% to $458.3 million during the quarter primarily due to higher store occupancy and depreciation expenses, while as a percentage of net sales the same increased 250 basis points to 45.7%.

Store Update

During the quarter under review, this designer and retailer of fine jewelry opened two company-operated stores, shuttered two locations and relocated two stores. As of Apr 30, 2019, the company operated 321 stores (124 in the Americas, 89 in Asia-Pacific, 56 in Japan, 47 in Europe, and five in the UAE). Management now anticipates gross retail square footage growth of 3% for fiscal 2019 on the back of eight store openings, six closings and 15 relocations.

Other Financial Details

Tiffany, which shares space with Signet (SIG - Free Report) , ended the quarter with cash and cash equivalents and short-term investments of $762.7 million and total long-term debt of $1,023.3 million, reflecting 32% of stockholders’ equity.

In the quarter, the company repurchased approximately 271,000 shares at an average cost of about $94 per share. The company still has $610 million remaining under its share repurchase program, which expires in January 2022. The company also raised its quarterly dividend by 5% to 58 cents a share.

For fiscal 2019, management expects net cash from operating activities of at least $750 million, capital expenditures of about $350 million and free cash flow of at least $400 million.

Guidance

For fiscal 2019, management expect worldwide net sales growth at a low-single-digit rate. Earnings per share are likely to increase at low-to-mid-single-digit rate with second quarter earnings likely to decline on account of sales-related challenges owing to lower foreign tourist spending, tough year-over-year comparisons and sales deleverage on fixed costs. The company had earlier guided mid-single-digit increase in earnings per share. Comps for the fiscal year are expected to rise in low-single-digit.

Stocks to Consider

The Children's Place (PLCE - Free Report) has a long-term earnings growth rate of 8%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands, Inc. (LB - Free Report) has a long-term earnings growth rate of 11% and a Zacks Rank #2.

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