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Tiffany Misses, Trims Outlook

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Tiffany & Company (TIF - Free Report) posted lower-than-expected third-quarter 2012 results. The quarterly earnings of 49 cents a share missed the Zacks Consensus Estimate of 63 cents, and dropped sharply from 70 cents earned in the prior-year quarter. The disappointing result was a due to shriveled gross margin and higher tax rate, apart from difficult year-over-year comparisons.

Given the weaker-than-expected results and sluggish economic recovery in most of the countries, management trimmed its fiscal 2012 outlook. Shares of Tiffany dropped 8.4% to $58.40 during pre-market trading hours.

Let s Unveil the Picture

Tiffany, which face stiff competition from Signet Jewelers Limited (SIG - Free Report) and Zale Corporation , posted net sales of $852.7 million during the quarter, up 4% from the prior-year quarter, on the heels of healthy performance of stores in the Americas, Asia-Pacific and Europe regions and new collection launches. However, total revenue fell short of the Zacks Consensus Estimate of $858 million. In constant currencies, net sales jumped 5%, whereas comparable-store sales inched up 1%.

By geographic segment, sales in the Americas grew 3% to $400 million, whereas comps remained flat during the quarter; sales in the Asia-Pacific region climbed 2% to $188 million but comps dropped 3%; sales in Japan were rose marginally to $147 million and comps rose 2%; and sales in Europe jumped 6% to $98 million and comps increase 2%. Other sales surged 73% to $21 million.

In constant currencies, sales in the Americas rose 3%, whereas comps inched up 1% during the quarter; sales in the Asia-Pacific region grew 2% but comps fell 4%; sales in Japan advanced 3%, while comps grew 5%; and sales in Europe climbed 11%, whereas comps jumped 8%.

Gross profit for the quarter dipped 2% to $464.3 million, whereas gross margin contracted 350 basis points to 54.4% due to rise in precious metal and diamond costs and lower margin products.

Stores Update

Tiffany opened 12 outlets during the quarter, including 7 in the Americas, 3 in Asia-Pacific; and 1 each in Europe and Japan. The company plans to add net 28 stores in fiscal 2012 with 13 in the Americas, 8 in Asia-Pacific, 2 in Europe and 5 in the United Arab Emirates (marking the commencement of operation in the region). The company has already opened net 25 stores year-to-date.

As of October 31, 2012, the company operated 272 stores (113 in the Americas, 64 in Asia-Pacific, 56 in Japan, 34 in Europe and 5 in the U.A.E.).

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $345.9 million, and total short-term and long-term debt of $977.9 million, reflecting 40% of shareholders equity compared with 31% in the prior-year.

So far in the fiscal year, Tiffany had repurchased about 813,000 shares at $66.54 each, aggregating $54 million during the quarter. The company did not buyback any share during the quarter under review.

Strolling Through Guidance

Tiffany lowered its fiscal 2012 guidance. The company now projects earnings in the range of $3.20 to $3.40 per share, down from $3.55 to $3.70 forecasted earlier. The current Zacks Consensus Estimates for the fourth quarter and fiscal 2012 are $1.61 and $3.59 per share.

Tiffany now expects total net sales growth of 5% to 6% for fiscal 2012, down from 6% to 7% increase predicted previously. Management projects capital expenditures of approximately $230 million for the year.

Currently we have a Neutral recommendation on the stock. However, Tiffany holds a Zacks #2 Rank that translates into a short-term Buy rating, and indicates a pick up demand this holiday season resulting from new jewelry collections and more outlets.

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