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Is Tiffany’s Second Quarter A Solid One?

August 28, 2014 | About:

Luxury jewelry retailer, Tiffany & Co. (NYSE:TIF) reported better-than-expected results beating Wall Street forecast on both profits and revenue. Management also raised its full-year earnings forecast and this sent Tiffany shares into the positive territory soon after the earnings call.

Let’s take a quick peek into the numbers and assess the second quarter’s performance.

Worldwide sales riding high

On a constant exchange rate basis, worldwide net sales rose 7%, and comparable store sales increased 3% this quarter. The 177-year-old jeweler reported revenue worth $992.9 million in the second quarter, 7% higher than $925.8 million reported a year earlier. Revenue also beat analyst estimation of $989 million. Tiffany’s CEO, Micheal Kowalski stated during the earnings call:

“We were also pleased with solid performance across most product categories, ranging from the success of perennial classics in fine, statement and engagement jewelry to our newest Atlas collection, and we are excited about the current debut of our new Tiffany T jewelry collection.”

The revenue growth was highly attributed to the strong product mix, continued success in colored diamond sales and solid sales in the statement jewelry category. Fashion jewelry was particularly strong this quarter mostly driven by demand for gold jewelry, while silver demand was muted.

Growth in sales was primarily seen in the American and Asia-Pacific regions where total sales improved 9% and 14% in the quarter but was slightly offset by 13% decline in Japan due to the effect of a consumption tax hike. In the Asia-Pacific market, sales were driven by strong demand for jewelry in Greater China and Australia.

During the second quarter, Tiffany opened a single store in America, with total of five stores being opened in the first half of the year. As on July 31, the company has 293 stores globally compared with previous year’s 277 stores. This increase in store count made sales go up by a good 6%.

Earnings lifted high

Net income improved 16% to $124 million or $0.96 per share, a figure that beat both Wall Street's estimate and the year-ago EPS by $0.10 per share and $0.13 per share, respectively. The profit exhibited a significant improvement as sales rose globally. Gross margin for the quarter was also on the higher side, increasing to 59.9% from 57.5% a year-ago due to lower raw material costs and higher average jewelry selling prices.

Following healthy results, management has revised its earnings guidance from $4.15-$4.25 per share to $4.20-$4.30 per share for the fiscal year. Analyst’s estimation of $4.29 earnings per share are also in line with the company forecast.

Tiffany T collection to grab quick attention

The Tiffany T collection that debuted this August is an offering of simple designs – pieces are available in yellow, white or rose gold as well as in sterling silver. Prices for the same vary from a few hundred dollars to nearly $20,000. Citi research analyst Oliver Chen comments that Tiffany’s top line would be benefited from the collection, which could increase store traffic as well as drive the fashion jewelry average unit retail. Moving forward, the management seems optimistic of making the most from the launch of this exclusive collection.

Investors gifted the chery

This March, management authorized a new repurchase program of up to $300 million of the company’s common stock over a period of three year through 2017. Tiffany spent approximately $9 million in the second quarter to repurchase 102,000 shares at an average cost of $90.98 per share. Cumulatively in the first half of the year, the company has spent $16 million for repurchasing 184,000 shares at an average cost of $89.18 per share.

Rounding up

Tiffany’s second quarter was a good one with improved global sales; although Japan showed a slide in revenue generation, the company expects sales to return to a normal level in the second half of the year. Also as the earning guidance has been lifted, it is expected that Tiffany will work on its store count and the product range to attract more customers to its stores. As the U.S. remains a key market with decent growth momentum, it could help Tiffany offset the softer demand from other parts of the world.

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