Tiffany & Company ( TIF ) posted impressive second-quarter fiscal 2014 results. The company delivered earnings of 96 cents a share, way ahead of the Zacks Consensus Estimate of 86 cents and higher than the prior-year quarter's 83 cents. Results benefited from higher sales and improved gross margin.
Shares of this jewelry retailer rose roughly 3% on the index in the pre-market trading session.
Tiffany posted net sales of $992.9 million during the quarter, up 7% from the prior-year quarter, driven by healthy performance primarily across the Americas and Asia-Pacific regions. Moreover, total revenue came ahead of the Zacks Consensus Estimate of $990 million. In constant currencies, net sales jumped 7%, whereas comparable-store sales (comps) climbed 3%.
By geographic segments, sales in the Americas grew 9% to $484 million, while comps rose by 8%; sales in the Asia-Pacific region climbed 14% to $237 million whereas comps increased 7%; sales in Japan declined 13% to $119 million and comps fell 15%; and sales in Europe jumped 8% to $120 million but comps dropped 2%. Other region sales surged 28% to $33 million whereas comps grew 2%.
In constant currencies, sales in the Americas rose 10%, while comps grew by 8% during the quarter; sales in the Asia-Pacific region grew 13%, whereas comps rose 7%; sales in Japan fell 10%, while comps also decreased by 13%; and sales in Europe inched up 1%, whereas comps fell 8%.
Gross profit for the quarter increased 11.8% to $595.2 million, while gross margin expanded 240 basis points to 59.9% due to lower product cost and increase in prices. Operating income jumped 17.9% to $208.5 million, while operating margin increased 190 basis points to 21%. The margin improvement was driven by higher gross margin.
Tiffany opened 1 outlet in the Americas in Aventura, FL during the quarter. The company in fiscal 2014 plans to open 10 stores - four in the Americas, two in Asia-Pacific, two in Japan, and one each in Europe and Russia, and shut down 3 stores-one each in the Americas, Asia-Pacific and the U.A.E.
As of Jul 31, 2014, the company operated 293 stores (122 in the Americas, 72 in Asia-Pacific, 55 in Japan, 38 in Europe and 5 in the U.A.E. and 1 in Russia).
Other Financial Details
Tiffany ended the quarter with cash and cash equivalents and short-term investments of $398.4 million, and total short-term and long-term debt of $1,025.5 million, reflecting 35% of shareholders equity. Capital expenditures of $91 million were incurred in the first-half of fiscal 2014. Management projected capital expenditure of $270 million and expects to generate free cash flow of at least $400 million in fiscal 2014.
Tiffany bought back shares worth $9 million in the quarter. In Mar 2014, the company's board of directors had authorized a share repurchase program of $300 million, which is slated to expire on Mar 2017. As of Jul 31, the company had $284 million at its disposal under share repurchase authorization.
Following healthy results, Tiffany raised its earnings expectations. The company now projects fiscal 2014 earnings between $4.20 and $4.30 per share against $4.15 and $4.25 expected earlier. The current Zacks Consensus Estimate for fiscal 2014 is $4.28 per share, which could witness an upward revision in the coming days.
Tiffany now project total net sales growth in a high single-digit percentage for fiscal 2014.
Tiffany currently sports a Zacks Rank #3 (Hold). Better-ranked retail stocks include Citi Trends, Inc. ( CTRN ) and Signet Jewelers Ltd. ( SIG ) sporting a Zacks Rank #1 (Strong Buy), as well as Abercrombie & Fitch Co. ( ANF ) carrying a Zacks Rank #2 (Buy).