on Wednesday delivered rock-solid financial numbers for the
second quarter of fiscal 2014, beating analysts' forecasts for
both sales and earnings growth. Let´s review the jewelry
retailer's latest earnings conference call to see what management
said regarding Tiffany's recent performance and the future of the
Strength in the Americas is coming from the high end of
the pricing spectrum.
Tiffany performed particularly well in the Americas region; this
is quite encouraging considering that many other companies that
rely ondiscretionary consumer spending are reporting weak demand.
Higher-priced products actually sold better than more affordable
choices, which shows that Tiffany is as strong as ever among
high-end consumers, and that the brand´s power is not being
diluted as the company expands.
According to Mark Aaron, vice president of investors
In the Americas, total sales were up 9% primarily due to an
overall increase in the average price per jewelry unit sold. We
were pleased to experience healthy unit growth in the
statement, fine, and solitaire jewelry category, as well as in
our engagement jewelry and wedding band category. And we're
pleased that fashion jewelry unit sales are benefiting from
strength in gold jewelry.
However, continued softness and silver jewelry unit sale in
particular entry level sales under $500 was the reason why we
had no growth in total jewelry units in the Americas.
Abundant room for expansion in Asia
Sales boomed in the Asia-Pacific even though Tiffany did not open
any new stores in the market during the last quarter. As of the
end of the second quarter, Tiffany owned 72 stores in the region
from a total base of 293 locations. Considering demand strength
in such a promising market, it looks like Tiffany enjoys
considerable room to expand its store base in the Asia-Pacific
over the long term.
In Aaron's words:
The Asia-Pacific region achieved a 14% total sales increase
in the quarter due to growth in the average price per jewelry
unit sold and in jewelry unit volume.
On a constant-exchange-rate basis increases of 13% in total
sales and 7% in comp store sales reflected strength primarily
in greater China and in Australia. You should note that the 7%
comp increase followed a 10% increase in the first quarter and
was on top of a 13% increase in last year's second quarter. We
didn't open any stores in this region during the quarter but
are on track to open two stores later in the year; one in
Adelaide, Australia, and one in China as well as relocating our
store within the Hong Kong airport. Two additional stores in
China and one in Thailand that were initially scheduled to open
near the end of this year are now slated to open in the first
half of 2015 due to timing delays.
Strong pricing is generating increases in gross profit
Chief Financial Officer Ralph Nicoletti noted during the
conference call that Tiffany is producing expanding profit
margins on the back of strong pricing. This is not only a
positive when it comes to financial performance, but it also
shows that demand remains remarkably strong and that brand
differentiation is a crucial competitive advantage for the
Gross margin rose 2.4 points to 59.9% in the second quarter,
largely due to favorable product costs and price increases
taken across all product categories and regions. And to a
lesser extent some sales leverage on fixed costs. Additionally,
we are pleased to see fashion jewelry sales grow in line with
total company sales which contributed to the margin exceeding
our expectations. Gross margin also benefited versus our
forecast from a lower than expected level of wholesale sales of
Inventories increased more than sales during the quarter, which
management attributed to increased stocking in preparation for
the launch of the new Tiffany T collection. Investors may want to
monitor inventory levels to make sure that growth there remains
below sales growth rates over the coming quarters.
Inventories of $2.5 billion at July 31 were up 9% from a
year ago, partly to support overall anticipated sales growth
but with disproportionate increases in raw materials and
working process inventories partly to support the launch of the
Tiffany T collection.
Our full-year and longer-term objective continues to call
for maintaining inventory growth less than the rate of sales
Growing dividends for investors
Management plans to increase dividends in line with earnings
growth over the long term. The current dividend payment of $1.36
annually represents a yield of 1.5%, which is not particularly
high. However, considering recent performance and long-term
opportunities for growth, investors have solid reasons to expect
material dividend expansion from Tiffany in the future.
Besides, the dividend payout ratio is quite low at 31% of
average earnings estimates for fiscal 2014, and the company has a
healthy balance sheet. This leaves considerable upside room when
it comes to dividends and share buybacks.
According to Nicoletti:
In terms of share repurchases during the quarter, we spent
approximately $9 million to repurchase 102,000 shares at an
average cost of approximately $91 a share. There was $284
million available for future repurchases under a $300 million
three-year program that was authorized by Tiffany's board of
directors in March.
As Mark mentioned, Tiffany's board increased the quarterly
dividend rate by 12% in the second quarter, reflecting our
longer term objective to grow dividends roughly in line with
earnings growth and thus maintaining the current payout
While investors may want to keep an eye on management's ability
to keep inventoryunder control, Tiffany delivered broadly good
news to shareholders during the last quarter. Considering demand
strength and opportunities for growth, it looks like Tiffany will
continue sparkling in the years ahead.
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5 Things Tiffany´s Management Wants You to
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