Tiffany's (TIF) Q4 Earnings Meet, Revenues Miss, Stock Down

Tiffany & Co. (NYSE:TIF) reported fourth-quarter fiscal 2018 results, wherein the bottom line met the Zacks Consensus Estimate after surpassing the same in the preceding ten quarters. However, top line fell short of the consensus mark for the second successive quarter. Moreover, both net sales and earnings per share decreased year over year.

Results were significantly impacted by reduced sales to foreign tourists and lower demand from local customers across most regions and product categories. We note that increased investment spending hurt the company’s quarterly earnings, while lower effective tax rate and share repurchase activity favorably impacted the same.

Tiffany reiterated its fiscal 2019 sales and earnings projection. Management also guided that first-half of fiscal 2019 is likely to witness roadblocks stemming from tough year-over-year sales comparisons and higher strategic investment spending.

Meanwhile, shares of this Zacks Rank #4 (Sell) company are down roughly 5% during the pre-market trading session. In fact, the stock has plunged 20.3% in the past six months compared with the industry’s decline 25.2%.

Q4 Highlights

The company reported quarterly earnings of $1.67 per share that included a tax benefit of 7 cents. Excluding the same, adjusted earnings of $1.60 came in line with the Zacks Consensus Estimate but down roughly 4% year over year.

Net sales came in at $1,320.6 million, down 1% from $1,334.3 million in the prior-year quarter. The reported figure also came below the Zacks Consensus Estimate of $1,340.6 million. Also, the company’s comparable sales (comps) declined 1%. In constant currencies, worldwide net sales inched up 1%, while comps remained unchanged.

Sales across Jewelry Collections grew 3%. On the contrary, sales across Engagement Jewelry and Designer Jewelry declined 3% and 8%, respectively.

Nevertheless, Tiffany remains focused on evolving its brand, enhancing omni-channel experience, solidifying position in core markets, increasing operating model efficiency and enriching overall organization. The company remains committed to elevating in-store experience and replenishing product portfolio.

Let’s Delve Deeper

By geographic segments, sales in the Americas remained flat at $618 million, while comps also remained unchanged. In the Asia-Pacific region, sales fell 1% to $316 million, while comps declined 3%. In Japan, sales went up 3% to $196 million, while comps grew 3%. Sales in Europe came in at $162 million, down 3%, while comps fell by 5%. Other net sales came in at $29 million, down 25%, whereas comps plunged 29%.

Gross margin contracted 10 basis points to 63.8% in the quarter under review. Operating margin shrunk 300 basis points to 20.3%, thanks to increased SG&A expenses.

SG&A expenses rose 6% to $573.6 million during the quarter primarily due to higher marketing spending, store occupancy and depreciation expenses. Apart from marketing, Tiffany increased its expenditure in technology, visual merchandising, digital and store presentations.

Management also revealed intentions to increase investments in various areas, in a drive to reach its long-term growth potential. Consequently, fiscal 2019 operating margin is expected to be marginally above from the year-ago level.

Store Update

During fiscal 2018, this designer and retailer of fine jewelry opened 10 company-operated stores, shuttered four locations and relocated 10 stores. As of Jan 31, 2019, the company operated 321 stores (124 in the Americas, 90 in Asia-Pacific, 55 in Japan, 47 in Europe, and five in the UAE). Management now anticipates gross retail square footage growth of 3% for fiscal 2019 on the back of eight store openings, six closings and 15 relocations.

Other Financial Details

Tiffany, which shares space with Signet (NYSE:SIG) , ended the quarter with cash and cash equivalents and short-term investments of $855.3 million and total long-term debt of $996.8 million, reflecting 32% of stockholders’ equity.

In the quarter, the company repurchased approximately 400,000 shares at an average cost of about $102 per share. The company still has $635 million remaining under its share repurchase program, which expires in January 2022.

For fiscal 2019, management expects net cash from operating activities of at least $750 million, capital expenditures of about $350 million and free cash flow of at least $400 million.

Guidance

For fiscal 2019, management continues to expect worldwide net sales growth at a low-single-digit rate, on a reported basis. Earnings are likely to increase at a mid-single-digit rate, with the first-half earnings likely to decline on account of sales-related challenges owing to soft tourist spending, anticipated currency headwinds and tough year-over-year comparisons. Also, increased expenses related to certain investments are anticipated to weigh on the company’s first-half performance. Comps for the fiscal year are expected to rise in low-single-digit.

Stocks to Consider

Abercrombie & Fitch Company (NYSE:ANF) delivered an average positive earnings surprise of 88.3% in the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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