Friday, Tiffany & Co. (TIF), world's second-largest luxury-jewelry retailer, posted a steep decline in first-quarter profit, as quarterly sales fell year-on-year and higher product costs weighed on the company's margins. On a per share basis, earnings declined and came in line with the Street view. In addition, the jeweler reaffirmed financial forecast for the full year.
As demand for jewelry is determined by personal income and world gold and silver prices, fine jewelry retailers are reeling from the economic whirlwind that coerced even the well-off consumers to retard from impromptu spending. In an effort to muddle through the slowdown, several companies, including Tiffany, are reducing workforce or tuning up inventories to discard slow-selling commodities. Yet, Tiffany broadened its compass by acquiring the bankrupt Lambertson Truex handbag brand.
Q1 Results
The New York-based upscale retailer's first-quarter net income plunged to $24.3 million or $0.20 per share from $64.4 million or $0.50 per share in the year-ago quarter.
On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.20 per share. Analysts' estimates typically exclude special items.
Quarterly net sales declined 22% to $523.1 million from the previous year's sales of $668.1 million, and fell short of nine Wall Street analysts' consensus revenue estimate of $533.03 million.
On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales fell 18%, with a 21% drop in comparable store sales.
However, Michael Kowalski, chairman and chief executive officer, said, "Despite reduced consumer demand in the luxury sector, Tiffany is, and is projected to remain, solidly profitable and will generate substantial cash from operations. We remain confident about the continued effectiveness of our fundamental growth strategies, and in their ability to generate superior financial returns when economic conditions improve."
Other Metrics
During the latest quarter, gross margin was 55.6%, compared with 57.1% in the year-earlier quarter, primarily due to higher product costs. Cost of sales amounted to $232.0 million, compared to $286.9 million last year.
Selling, general and administrative expenses or SG&A totaled $236.6 million, down 15%, compared to $277.9 million in the prior year quarter, reflecting reduced staff and marketing costs, as well as variable cost savings tied to lower sales levels.
Net interest and other expenses grew to $12.4 million from $1.51 million incurred in the comparable quarter of the previous year, primarily due to increased interest expense related to recent issuances of long-term debt.
Segmental Analysis
The company's Americas segment fetched first quarter sales of $259.0 million, down 31%, with a 34% decline in comparable U.S. store sales, which included a 32% decrease in comparable branch store sales and a 42% downfall in New York flagship store sales. Tiffany opened stores in Toronto and Guadalajara. Combined Internet and catalog sales in the U.S. fell 17%.
In the Asia-Pacific region, first quarter sales were $201.4 million, a decline of 9% from last year. On a constant-exchange-rate basis, sales declined 7% and comparable store sales dropped 9%. The retailer opened stores in Hangzhou, China and Busan, Korea, and closed one in Ikebukuro, Japan.
Quarterly sales at Europe fell 8% to $55.6 million from prior year. On a constant-exchange-rate basis, sales rose 18% largely due to incremental sales from new stores opened in the prior year, and comparable store sales improved 3%.
Other sales plummeted 43% to $7.0 million in the recent quarter due to reduced wholesale sales of diamonds partly offset by higher sales in soon-to-be-closed IRIDESSE stores.
Future In Focus
Looking ahead, the company, which operated 209 TIFFANY & CO. stores and boutiques as of April 30, 2009, versus 192 locations a year ago, continues to project fiscal 2009 earnings from continuing operations to range between $1.50 and $1.60 per share, with worldwide sales estimated to decline about 11%. Analysts are looking for earnings of $1.56 per share for the full year.
Tiffany's sales forecast includes regional sales decline of a mid-teens percentage in the Americas, a mid-single-digit percentage in the Asia-Pacific region, a high-single-digit percentage in Europe, as well as a 20% decline in Other sales.
Operating margin is still expected to decline due to lower gross margin and the anticipated sales de-leverage effect on fixed costs, partly offset by savings tied to staff reductions as well as other cost-related initiatives.
Peer Review
Among other fine jewelry retailers, Zale Corp. (ZLC) incurred a wider loss in the third quarter that amounted to $23.2 million or $0.73 per share compared to a loss of $16.8 million or $0.40 per share in the prior year quarter, hampered by lower revenues and a negative impact related to reduced outstanding share count. Revenue fell 20.5% to $379.11 million from $476.74 million a year earlier.
Signet Jewelers Ltd. (SIG) reported a fourth-quarter net loss of $424 million or $4.97 per share compared to a profit of $143 million or $1.65 per share in the year-ago quarter, hurt by a massive impairment charge coupled with lower sales. Quarterly sales declined to $1.124 billion from $1.385 billion in the previous year.
Recently, Signet Jewelers posted first quarter sales of $762.6 million, down 7.3% from $822.5 million in the same period of last year. Group same store sales for the quarter descended 2.9%. In the UK, same store sales were down by 4.2%.
Stock Performance
Tiffany shares, which have been trading between $16.70 and $49.98 in the past 52 weeks, closed Thursday's trading session at $28.13.
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