Tiffany & Co. secured a little extra breathing room from its lenders — but it’s not clear if that is going to make Bernard Arnault feel any better about his planned $16.2 billion acquisition of the jeweler.
As WWD first reported last week, the Arnault-led luxury giant LVMH Moët Hennessy Louis Vuitton has been taking a close look at the merger agreement signed in November and one of the areas under the microscope was Tiffany’s compliance with its debt covenants. If the jeweler did break the conditions set in its loan agreements, LVMH could likely use that to break the deal and walk away or negotiate a lower price.
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Mark Erceg, Tiffany’s chief financial officer, said Tuesday: “Tiffany has an investment grade balance sheet, has ample cash on hand and was in compliance with all debt covenants as of April 30, 2020. Nonetheless, we still took the decision — as have many other companies — to amend certain of our debt agreements in order to create additional financial covenant headroom given these unprecedented times.”
The changes last through the first quarter of next year and give the company some more wiggle room by increasing the maximum leverage ratio and reducing the fixed charge coverage ratio on its various financing arrangements.
But the fine print in the company’s loan documents is not the real, long-term focus — either in Tiffany’s New York headquarters or in Paris, where LVMH Moet Hennessy Louis Vuitton is based. The larger questions revolve around the state of the business and the longer-term outlook in a world changed by the coronavirus.
For the first quarter quarter ended April 30, Tiffany posted losses of $64.6 million, or 53 cents a share, down from earnings of $125.2 million, or $1.03, a year earlier. Sales fell 45 percent to $555.5 million from $1 billion.
For his part, Alessandro Bogliolo, Tiffany’s chief executive officer, said the future is bright.
“The character and strength of Tiffany & Co. have been tested many times over the past 183 years and, because of its exceptionally talented and devoted employees, the company has always been able to persevere and succeed,” Bogliolo said. “That is why we took balanced and appropriate steps, like much of the luxury industry, to protect our valued employees who are the heart and soul of the brand. The entire Tiffany family has shown extraordinary agility and is fully committed to ensuring that the deep connection we have built with our customers is enhanced and strengthened during these difficult times.
“I am confident Tiffany’s best days remain in front of us because there is evidence that the strategic decisions we took to focus on our Mainland China domestic business, global e-commerce, and new product innovation are paying off — even against the backdrop of a global pandemic,” Bogliolo said.
The ceo pointed to:
- The bounceback in China, where sales were down as much as 85 percent at the start of the quarter, but then climbed 30 percent in April, against a year earlier.
- The performance of the company’s global e-commerce business, which rose 23 percent in the quarter.
- A strong start for the Tiffany T1 collection in rose gold and gold with diamonds, which matched the company’s original projections even with many stores closed.
“For these reasons, and as I stated earlier, I am confident that Tiffany’s best days remain ahead of us and I am excited we will be taking that journey with LVMH by our side,” Bogliolo said. “On the topic of the merger, we are pleased that there has been additional progress with the antitrust/competition process in the last few weeks; notably, we obtained clearance last week for the transaction from the Federal Antimonopoly Service of Russia and were notified in late May that the Mexican competition authority has declared our filing to be complete.”
But there are more hurdles to pass and the buyer — LVMH itself — might be one of them.