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Tiffany (TIF) Misses on Q1 Earnings & Sales, Lowers View

After registering a positive earnings surprise of 4.3% in the final quarter of fiscal 2015, Tiffany & Co.TIF succumbed to a negative earnings surprise in the first quarter of fiscal 2016. The company posted adjusted quarterly earnings of 64 cents a share - excluding the tax benefit of 5 cents - that fell short of the Zacks Consensus Estimate of 68 cents and plunged 21% year over year. The decline in the bottom line was due to sluggish top-line performance and increased selling, general and administrative expenses, partially offset by higher gross margin.

Net sales came in at $891.3 million, down 7% from $962.4 million recorded in the prior-year quarter, and also below the Zacks Consensus Estimate of $924 million. The decline in net sales was due to lower spending by both local customers and foreign tourists. Comparable-store sales (comps) declined 9%.

In constant currencies too, net sales and comps fell 7% and 9%, respectively. The top line was impacted by soft sales in the Americas, Asia-Pacific and Europe, partially offset by sales growth in Japan.

As a result of these, management provided a muted outlook for fiscal 2016. Shares of this jewelry retailer fell roughly 4.5% during pre-market trading hours.

By geographic segments, sales in the Americas fell 9% to $403 million, while comps declined by 10%. Sales in the Asia-Pacific region declined 8% to $238 million, and comps were down 15%. Sales in Japan jumped 8% to $131 million and comps rose by 12%, while sales in Europe came in at $97 million, down 9%, while comps decreased 15%. Other region's sales came in at $22 million, down 30%, while comps declined 21%.

In constant currencies, total sales and comps in the Americas fell 8% and 9%, respectively, from the year-ago quarter. Sales in the Asia-Pacific region decreased 5%, while comps declined 12%. Sales in Japan inched up 1%, while comps increased 5%. Sales fell 7%, while comps declined 14% in Europe.

Gross margin expanded 210 basis points to 61.2% during the quarter on the back of favorable product input expenses, shift in sales mix towards higher-margin products and increase in price. Operating margin contracted 260 basis points to 15.1%.

Store Update

During the quarter, Tiffany opened 2 company-operated outlets in Europe, and closed 1 location in Japan. As of Apr 30, 2016, the company operated 308 stores (124 in the Americas, 81 in the Asia-Pacific, 55 in Japan, 43 in Europe, and 5 in the U.A.E.). Management now anticipates gross retail square footage growth of 2% via 11 openings, 6 relocations and 10 closings.

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $789.9 million, and total short-term and long-term debt of $1,102.8 million, reflecting 37% of shareholders equity. Capital expenditures of $46 million were incurred during the quarter.

Tiffany bought back shares worth $78 million in the quarter. As of Apr 30, 2016, the company had $416 million remaining under its $500 million buyback program that runs through Jan 31, 2019.

Management anticipates capital expenditures of $260 million and expects to generate free cash flow of at least $400 million during fiscal 2016.

Guidance

Management anticipates earnings per share for fiscal 2016 to decrease by a mid-single-digit percentage from the prior year. The company had earlier forecast earnings per share for fiscal 2016 to be flat to down in the mid-single-digits. Tiffany now projects second-quarter earnings to decline at a rate equivalent to that of first-quarter fiscal 2016.

Tiffany envisions fiscal 2016 worldwide net sales to decrease by a low-single-digit percentage.

Zacks Rank

Tiffany currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Delta Apparel Inc. DLA and The Children's Place, Inc. PLCE both sporting a Zacks Rank #1 (Strong Buy), and Carter's, Inc. CRI holding a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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