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Tiffany Beats on Bottom-Line

Zacks Equity Research

Tiffany & Company (TIF) posted better-than-expected fourth-quarter fiscal 2012 results due to surge in demand in the Asia-Pacific region. The quarterly earnings of $1.40 per share beat the Zacks Consensus Estimate of $1.37, and rose marginally by 0.7% from $1.39 earned in the prior-year quarter.

Let’s Unveil the Picture

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), posted net sales of $1,235.8 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 due to new collection launches.

However, total revenue fell short of the Zacks Consensus Estimate of $1,255 million. In constant currencies, net sales jumped 5%, whereas comparable-store sales remain unchanged.

By geographic segment, sales in the Americas grew 2% to $620 million, but comps fell 2% during the quarter; sales in the Asia-Pacific region climbed 13% to $254 million, whereas comps increased 8%; sales in Japan dropped 6% to $192 million and comps declined 6%; and sales in Europe jumped 3% to $146 million and comps inched up 1%. Other sales nearly surged twofold to $24 million.

In constant currencies, sales in the Americas rose 2%, but comps edged down 2% during the quarter; sales in the Asia-Pacific region grew 10%, whereas comps rose 6%; sales in Japan advanced 2%, while comps grew 2%; and sales in Europe climbed 3%, whereas comparable-store sales remained equal.

Gross profit for the quarter increased 2% to $730.8 million, however, gross margin contracted 130 basis points to 59.1% due to rise in precious metal and diamond costs, and lower margin products.

Stores Update

Tiffany opened 28 outlets during fiscal 2012, including 13 in the Americas, 8 in Asia-Pacific; 2 in Europe and 5 in the United Arab Emirates (U.A.E.). The company plans to add net 14 stores in fiscal 2013 with 5 in the Americas, 7 in Asia-Pacific, 3 in Europe and closing 1 location in Japan.

As of Jan 31, 2013, the company operated 275 stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and 5 in the U.A.E.).

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents of $504.8 million, and total short-term and long-term debt of $959.3 million, reflecting 37% of shareholders equity compared with 30% in the prior-year.

The company generated $328.3 million of cash flow from operating activities and incurred capital expenditures incurred of $219.5 million, resulting in free cash flow of $108.8 million during fiscal 2012. Management forecasted capital expenditures of approximately $230 million and free cash flow of $300 for fiscal 2013.

During fiscal 2012, Tiffany had repurchased about 813,000 shares at $66.54 each, aggregating $54 million. The company did not buyback any share during the quarter under review, and still has $164 million remaining under its share repurchase authorization slated to expire in January 2014.

Strolling Through Guidance

Tiffany now projects fiscal 2013 earnings in the range of $3.43 to $3.53 per share, reflecting year-over-year growth of 6% to 9%. However, for the first quarter of fiscal 2013, the company forecasted a decline of 15% to 20% in net earnings from operations attributable to gross margin pressure and increase in costs associated to marketing.

The current Zacks Consensus Estimates for the first quarter and fiscal 2013 are 65 cents and $3.49 per share.

Tiffany now expects total net sales growth of 6% to 8% for fiscal 2013. In constant currencies, total net sales are projected to increase in the high-single-digit buoyed by sales growth in all regions, from mid-teens growth in Asia-Pacific to a low-single-digit jump in Japan.

Tiffany currently has a Zacks Rank #3 (Hold). Other retail stock that look promising and is expected to continue with its upbeat performance is Gildan Activewear Inc. (GIL), which carries a Zacks Rank #2 (Buy).

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