Tiffany (TIF, Financial) designs, manufactures and retails jewelry globally through retail sales, internet and catalog sales, business-to-business sales, and wholesale distribution. The company posted fourth-quarter fiscal 2014 results, and it was a case of a mixed bag as it beat on earnings but failed to impress on revenues.
Fourth-quarter recap
Sales in the Americas declined 1% year over year primarily due to a 2% decline in comps. In addition, sales and comps in Japan plunged 13% and 18% year over year, respectively. In Europe, sales remained flat, but comps registered a 4% year-over-year decline. For other regions, sales climbed 12% year over year despite an 8% decline in comps.
However, in currency-neutral terms, sales and comps during the fourth-quarter remained flat in the Americas, and APAC region registered 7% growth on the back of 3% comps growth. Also, sales in Japan inched up 1% year over year despite 5% comps decline, and sales in Europe moved up 9% year over year on the back of 4% jump in comps.
Overall, on constant currency terms, sales moved up by 3% year over year and comps remained flat.
However, as a result of the negative impact of currency translations and softness in demand in major regions, consolidated sales came in at $1,285.3 million, falling short of consensus estimates.
Adjusted earnings came in at $1.51 per share versus $1.47 per share in the year-ago quarter and beat consensus estimates by $0.01 per share.
Tiffany exited the quarter with cash and cash equivalents and short-term investments of $731.5 million, total short-term and long-term debt of $1,116.5 million.
Growth initiatives
- During fiscal 2014, the company bought back about 301,000 shares worth $27 million. The company still has around $273 million at its disposal under the share repurchase authorization of $300 million that that runs through March 2017. Shares buyback will boost the bottom line, going forward.
- Long-term goal to keep inventory growth below the sales growth in order to control inventory carrying costs.
- During fiscal 2014, Tiffany opened eight new and close two company-owned stores. In fiscal 2015, the company plans to open net 12 to 15 company-operated stores to drive top-line numbers, going forward. As of January 2015, the jewelry retailer operated 295 stores globally.
- The company launched a new CT-60 line of watches, costing anywhere between $4,200 and $19,000 and is banking on sales to move up and fuel growth.
- Besides new stores, the company will be renovating and relocating some of its existing stores.
Looking ahead
Looking at currency movement headwinds and other macro-economic headwinds, the earnings per share during fiscal 2015 is expected to be a little over $4.20, which was the EPS in fiscal 2014. First-quarter fiscal 2015 earnings are expected to decline 30%, followed by a modest decline in second-quarter and double-digit percentage growth in the back half of the fiscal year.
Total sales are expected to decline 10% year-over-year during first quarter of fiscal 2015 followed by low-single-digit percentage growth in the second quarter. For the full year, the company expects the sales to increase in low-single-digit in dollar terms.
Management went on to say:
“We believe that planning for modest sales growth and minimal earning growth is both prudent and justifiable. However, we remain constantly focused on that strategic roadmap I referred you by investing in various facets of our business to achieve healthy results over the long term.”
Final words
Tiffany is facing forex translation headwinds and muted spending of international tourists. The company has come out with a soft outlook for the first two quarter of fiscal 2015 and expects growth to happen only in the back half of fiscal 2015. The stock has lost around 19% year-to-date and around 4% during last one year. Currently the stock is trading close to its 52-week low. However, at a forward P/E of 18.08, it is already trading at a premium. Hence, for the time being, I would watch this stock from the sidelines.
