Tiffany & Company (TIF) posted better-than-expected fourth-quarter 2010 results buoyed by improved demand for luxury items worldwide. The quarterly earnings of $1.44 per share surpassed the Zacks Consensus Estimate of $1.39, and rose substantially from $1.09 earned in the prior-year quarter.
The Zacks Consensus Estimate rose by a penny over the last 30 days with only one out of 15 analysts covering the stock revising the estimate upward. On a reported basis, including one-time items, quarterly earnings came in at $1.41 per share compared with $1.09 delivered in the prior-year quarter.
Behind the Headline
Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), posted net sales of $1,101.2 million during the quarter, up 12% from the prior-year quarter, on the heels of stellar performance of new stores opened in Americas, Asia-Pacific and European regions, healthy same-store sales growth and new collection launches.
Total revenue also surpassed the Zacks Consensus Revenue Estimate of $1,092 million. Comparable-store sales climbed 11% in the quarter under review. In constant currencies net sales jumped 11% and comps grew 9%.
The jewelry market was hit hard by the recent global meltdown, which triggered a shift in focus to cheaper private label brands, but as the recession eased demand for luxury items also improved. Tiffany is well positioned to deliver robust sales and earnings growth. The company holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach. However, the recent catastrophe in Japan may dent its performance to some extent, which contributed 18% to total net sales during fiscal 2010.
By geographic segment, sales in the Americas grew 10% to $577.1 million, whereas comps rose 8% during the quarter; sales in the Asia-Pacific region surged 25% to $188.3 million and comps increased 21%; and sales in Europe climbed 14% to $137.9 million and comps rose by 9%. Sales in Japan advanced 11% to $182.6 million, and comps grew by 10%. Other sales plunged 30% to $15.3 million, reflecting fall in the wholesale sales of rough diamonds, which were partially offset by rise in the wholesale sales of end goods to independent distributors.
Gross profit for the quarter jumped 16.5% to $671 million, whereas gross margin expanded 220 basis points to 60.9%. Operating income climbed 23.9% to $278.2 million, whereas operating margin increased 240 basis points to 25.3%.
Stores Update
With signs of improvement in the retail environment, Tiffany now plans to open 21 stores in fiscal 2011 with 8 in the Americas, 5 in Europe and 8 in Asia-Pacific.
Tiffany opened 9 stores during the quarter under review. During fiscal 2011, the company opened 15 stores, including 5 stores in the Americas, 2 in Europe, 7 in Asia-Pacific, and 1 in Japan. Two locations were closed in Japan. As of January 31, 2011, the company operated 233 stores (96 in the Americas, 56 in Japan, 52 in Asia-Pacific and 29 in Europe).
Other Financial Details
Tiffany repurchased 137,000 shares at $58.26 each, aggregating $8 million during the quarter. During fiscal 2010, the company bought back 1,843,000 shares at $43.83 each, totaling $80.8 million.
In January 2011, Tiffany announced a new share repurchase program, overriding the previous program. The new program, which is set to expire on January 31, 2013, authorizes the company to buy back up to $400 million of shares. As of January 31, 2011, the company has $392 million at its disposal for future buy backs.
Tiffany ended fiscal 2010 with cash and cash equivalents and short-term investments of $740.9 million, and total short-term and long-term debt of $688.2 million, reflecting 32% of shareholders’ equity compared with 40% in the prior-year.
Management Guided
Tiffany, a high-end jewelry designer, manufacturer and retailer, slashed its first-quarter 2011 earnings guidance, stemming from store closures and limited store hour operations in Japan due to the recent massive earthquake and tsunami. Tiffany now projects first quarter earnings of 57 cents a share down from 62 cents forecasted earlier. Management now expects first quarter sales to increase 11%, including a 15% drop in sales from Japan.
Management notified that due to its inability to provide a better insight into future sales in Japan, it is not adjusting its sales and earnings guidance for fiscal 2011 in view of the recent aftermath.
Tiffany now anticipates total net sales for fiscal 2011 to rise between 12% and 14%. Management now expects a low-double digit percentage increase in sales in the Americas, at least 20% rise in the Asia-Pacific region and a more than 20% growth in Europe but a mid-single digit percentage sales decrease in Japan.
For fiscal 2011, Tiffany forecasts earnings in the range of $3.35 to $3.45, reflecting a growth of 14% to 18%. The current Zacks Consensus Estimate for first quarter is 55 cents and for fiscal 2011 is $3.22 per share.
Management anticipates capital expenditures in the range of $250 million to $275 million for fiscal 2011
Currently, we have a long-term “Outperform” rating on the stock. However, we remain concerned about Tiffany’s operations in Japan, which were recently hit by the earthquake and tsunami. Consequently, the stock holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
SIGNET GRP PLC (SIG): Free Stock Analysis Report
TIFFANY & CO (TIF): Free Stock Analysis Report
ZALE CORP NEW (ZLC): Free Stock Analysis Report
Zacks Investment Research
