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Tiffany (TIF) Q3 Earnings & Revenues Fall Short of Estimates

Zacks Equity Research

Tiffany & Co. TIF, which recently accepted the buyout proposal from LVMH Moet Hennessy - Louis Vuitton SE (or LVMH), posted third-quarter fiscal 2019 results. During the quarter, both earnings and sales missed the Zacks Consensus Estimate, with the latter marking its fifth straight miss. Moreover, earnings per share decreased year over year and margins were under pressure.

Tiffany continued to battle foreign-currency woes, soft spending by foreign tourists in the Americas and the Asia Pacific and headwinds in Hong Kong. Nonetheless, management is impressed with the strength of its underlying business, which benefited from higher sales from local customers. This, in turn, stemmed from solid growth in Chinese Mainland, somewhat countered by sluggishness in the Americas.

The company is focused on evolving its brand, evident from its recent colorful extension of Tiffany T, the introduction of Tiffany & Love fragrance pillars, the launch of the men’s collection and the ‘Very, Very Tiffany Holiday campaign.’

Moreover, Tiffany is encouraged about its deal with LVMH and looking forward to becoming a part of the same. Tiffany is likely to benefit from LVMH’s prominent presence in European and Asian markets. The news has been boosting investors’ sentiments in this Zacks Rank #3 (Hold) stock that has surged as much as 52.6% in the past three months compared with the industry’s growth of 52.1%.

Q2 Highlights

The company reported quarterly earnings of 65 cents per share that came much below the Zacks Consensus Estimate of 85 cents and declined 15.6% from the year-ago period. Lower operating margins and higher effective tax rate hurt the bottom line.

Tiffany & Co. Price, Consensus and EPS Surprise



Tiffany & Co. Price, Consensus and EPS Surprise

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

Net sales were nearly flat at $1,014.6 million, which missed the Zacks Consensus Estimate of $1,036 million. Also, the company’s comparable sales (comps) remained flat year over year. At constant currency, both worldwide net sales and comps rose 1%. Further, excluding the Hong Kong market, worldwide net sales and comps grew 4% and 3%, respectively.

Sales across Jewelry Collections and Engagement Jewelry were unchanged year over year. Nonetheless, sales across Designer Jewelry climbed 1% on a reported basis.

Let’s Delve Deeper

Geography-wise, sales in the Americas fell 4% to $423 million and comps declined 4%. The decline was witnessed in most parts of the Americas, due to reduced spending by foreign tourists as well as local shoppers.

In the Asia-Pacific region, sales remained flat at $294 million, while comps dropped 2%. This was attributable to currency headwinds. Further, considerable disruptions in Hong Kong and reduced expenditure by foreign tourists hurt sales, whereas strength in Chinese Mainland and local customer sales offered some respite.

In Japan, sales grew 19% to $169 million and comps rose at the same rate. Adverse currency movements also dented sales in Europe, which fell 3% to $111 million, with comps remaining flat. Other net sales decreased 13% to $17 million, while comps dropped 3%.

Gross margin contracted 50 basis points to 61.7% in the quarter under review, on account of changes in sales mix toward higher price point jewelry, along with unfavorable impacts from higher wholesale diamond sales. Operating margin shrank 80 basis points to 11.7%.

SG&A expenses rose about 1% to $507.2 million primarily due to higher store occupancy and depreciation charges, somewhat negated by lower marketing spending and a decline in labor and incentive compensation costs.

Store Update

During the year-to-date period, this designer and retailer of fine jewelry opened five company-operated stores and shuttered three. As of Oct 31, 2019, the company operated 323 stores (124 in the Americas, 90 in Asia-Pacific, 56 in Japan, 48 in Europe and five in the UAE).

Other Financial Details

Tiffany, which shares space with Signet SIG, ended the quarter with cash, cash equivalents and short-term investments of $529.6 million and total debt of $974 million, reflecting 31% of stockholders’ equity.

In the quarter, the company repurchased roughly 883,000 shares for $78 million. Year to date, Tiffany repurchased nearly 1.79 million shares for $163.4 million.

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Target TGT has a long-term earnings growth rate of 7.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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