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Tiffany (TIF) Q2 Earnings Surpass Estimates, Revenues Miss

Zacks Equity Research

Tiffany & Co.'s TIF second-quarter fiscal 2019 earnings per share topped the Zacks Consensus Estimate. This was the second straight quarter when the company’s bottom-line surpassed the consensus mark. However, the top line fell short of the consensus estimate for the fourth successive quarter. Moreover, both net sales and earnings per share decreased year over year. Also, margins remained under pressure.

Nonetheless, Tiffany retained fiscal 2019 view and added that it is trying all means to position itself amid headwinds related to sluggish demand from foreign tourists, adverse currency fluctuations and disruptions in Hong Kong.

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

Meanwhile, shares of this Zacks Rank #3 (Hold) company are up roughly 2% during the pre-market trading session. The stock has fallen 9% in the past three months compared with the industry’s decline of 11%.

Q2 Highlights

The company reported quarterly earnings of $1.12 per share that beat the Zacks Consensus Estimate of $1.05 but fell roughly 4% from the year-ago period. Lower operating margins and higher effective tax rate hurt the bottom line. However, decline in SG&A expenses and share repurchase activity provided some cushion.

Net sales came in at $1,048.5 million, down 3% from $1,075.9 million in the prior-year quarter. The reported figure came below the Zacks Consensus Estimate of $1,067.5 million. Also, the company’s comparable sales (comps) declined 4%. In constant currencies, worldwide net sales decreased 1%, while comps fell 3%.

Sales across Jewelry Collections were unchanged. On the contrary, sales across Engagement Jewelry and Designer Jewelry declined 3% and 10%, respectively.

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 $455 million, while comps also declined by an equivalent rate. In the Asia-Pacific region, sales slid 1% to $298 million, while comps tumbled 3%. In Japan, sales remained flat year over year at $155 million but comps fell 1%. Sales in Europe came in at $116 million, down 4%, while comps fell 6%. Other net sales were unchanged at $25 million, whereas comps plunged 29%.

Gross margin contracted 130 basis points to 62.7% in the quarter under review on account of changes in sales mix toward higher price point jewelry. Operating margin shrunk 20 basis points to 16%. For fiscal 2019, management expects operating margin to be equal to the year-ago level.

SG&A expenses declined 5% to $473.4 million during the quarter primarily due to lower marketing spending and fall in labor and incentive compensation costs. This was partly offset by higher store occupancy and depreciation charges.

Store Update

During the first half of fiscal 2019, this designer and retailer of fine jewelry opened three company-operated stores and shuttered two locations. As of Jul 31, 2019, the company operated 322 stores (124 in the Americas, 90 in Asia-Pacific, 56 in Japan, 47 in Europe, and five in the UAE). Management anticipates gross retail square footage growth of 3% for fiscal 2019 on the back of 10 store openings, five closings and 17 renovations/relocations.

Other Financial Details

Tiffany, which shares space with Signet SIG, ended the quarter with cash and cash equivalents and short-term investments of $680.6 million and total debt of $1,019.2 million, reflecting 32% of stockholders’ equity.

In the quarter, the company repurchased approximately 639,000 shares at an average cost of about $94 per share. As of Jul 31, 2019, the company still has $550 million remaining under its share repurchase program, which expires in January 2022.

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.


For fiscal 2019, management continues to 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. Comps for the fiscal year are expected to be unchanged.

Stocks to Consider

Boot Barn Holdings BOOT has a long-term earnings growth rate of 17% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fossil Group FOSL came up with positive earnings surprise in the last two reported quarters and holds a Zacks Rank #2 (Buy).

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