Tiffany Reports Its Third Quarter Financial Results

  Tiffany Reports Its Third Quarter Financial Results

Business Wire

NEW YORK -- November 29, 2012

Tiffany & Co. (NYSE: TIF) today reported that in its third quarter worldwide
net sales were $853 million and net earnings were $63 million, or $0.49 per
diluted share. Management updated its full year financial outlook.

In the three months (“third quarter”) ended October 31, 2012:

  *Worldwide net sales increased 4% to $853 million. On a
    constant-exchange-rate basis that excludes the effect of translating
    foreign-currency-denominated sales into U.S. dollars (see “Non-GAAP
    Measures” schedule), worldwide net sales rose 5% and comparable store
    sales increased 1%.
  *Net earnings declined 30% to $63 million, or $0.49 per diluted share,
    versus $90 million, or $0.70 per diluted share, in last year’s third
    quarter.

In the nine months (“year-to-date”) ended October 31, 2012:

  *Worldwide net sales of $2.6 billion were 4% higher than last year. On a
    constant-exchange-rate basis, worldwide net sales rose 5% and comparable
    store sales rose 1%.
  *Net earnings declined 9% to $237 million, or $1.85 per diluted share, from
    $261 million, or $2.02 per diluted share, last year.
  *Net earnings in 2011’s comparable nine-month period had included $26
    million, or $0.20 per diluted share, for nonrecurring items related to the
    relocation of Tiffany’s New York headquarters staff. Excluding those
    nonrecurring items, net earnings would have been 18% below last year.

Michael J. Kowalski, chairman and chief executive officer, said, “Three months
ago, we had anticipated that third quarter results would be affected by
continued economic weakness in many markets as well as by challenging
comparisons to last year when net sales were up 21% and net earnings had
increased 52% excluding nonrecurring items. However, gross margin was weaker
than we expected and Tiffany’s effective tax rate was higher than we expected.
As a result, net earnings were below our expectations.”

Net sales highlights were as follows:

  *Sales in the Americas region increased 3% to $400 million in the third
    quarter and 2% to $1.2 billion in the year-to-date. On a
    constant-exchange-rate basis, total sales also rose 3% in the quarter and
    2% in the year-to-date; on that basis, comparable store sales increased 1%
    in the quarter and declined 2% in the year-to-date (sales in the New York
    flagship store rose 5% in the quarter and declined 3% in the year-to-date,
    while comparable branch store sales declined 1% in both periods). In last
    year’s third quarter, comparable store sales on a constant-exchange-rate
    basis had increased 24% in the New York flagship store and 13% in the
    branch stores. Internet and catalog sales increased 3% in the third
    quarter and 2% in the year-to-date.
  *In the Asia-Pacific region, total sales increased 2% to $188 million in
    the third quarter and 6% to $557 million in the year-to-date. On a
    constant-exchange-rate basis, total sales also increased 2% in the quarter
    due to mixed performance across the region and 6% in the year-to-date; on
    that basis, comparable store sales declined 4% in the quarter (on top of a
    36% increase last year) and were fractionally higher in the year-to-date.
  *In Japan, total sales of $147 million in the third quarter were
    fractionally above the prior year while sales increased 8% to $447 million
    in the year-to-date. On a constant-exchange-rate basis, total sales
    increased 3% in the quarter and 8% in the year-to-date; on that basis,
    comparable store sales rose 5% in the quarter and 9% in the year-to-date.
  *Sales in Europe increased 6% to $98 million in the third quarter and 2% to
    $286 million in the year-to-date. Sales growth in most continental
    European countries offset a modest decline in U.K. sales. On a
    constant-exchange-rate basis, total sales rose 11% in the quarter and 9%
    in the year-to-date; on that basis, comparable store sales rose 8% in the
    quarter (on top of a 6% increase last year) and rose 3% in the
    year-to-date.
  *Other sales increased 73% to $21 million in the third quarter, reflecting
    the conversion in July of five TIFFANY & CO. stores in the United Arab
    Emirates from independently-operated distribution to Company-operated
    retail stores. Other sales rose 24% to $49 million in the year-to-date.
  *The Company added 12 stores in the third quarter: seven in the Americas in
    Soho, Manhattan, San Francisco and Toronto, as well as four
    department-store boutiques in Canada that were converted to
    Company-operated locations; three in Asia-Pacific in Harbin, China,
    Shenyang, China and Singapore; one in Europe in Prague, Czech Republic;
    and one in Chiba, Japan. At October 31, 2012, the Company operated 272
    stores (113 in the Americas, 64 in Asia-Pacific, 56 in Japan, 34 in Europe
    and five in the U.A.E.), compared with 243 stores (101 in the Americas, 55
    in Asia-Pacific, 55 in Japan and 32 in Europe) a year ago.

Other financial highlights:

  *Gross margins (gross profit as a percentage of net sales) were 54.4% in
    the third quarter and 56.0% in the year-to-date. These compare unfavorably
    to 57.9% and 58.4% in the respective prior-year periods. The declines
    largely resulted from continued high precious metal and diamond costs,
    sales mix favoring higher-priced, lower margin products, and reduced sales
    leverage on fixed costs. Sales mix was affected by, among other items,
    lower-than-expected sales of silver jewelry.
  *In the third quarter, SG&A (selling, general and administrative) expenses
    increased 5% largely due to higher store occupancy and marketing costs. In
    the year-to-date, SG&A expenses rose 1%; however, if nonrecurring costs
    related to the 2011 relocation of Tiffany’s New York headquarters staff
    were excluded, SG&A expense would have increased 6% in the year-to-date
    primarily due to higher store occupancy, labor and marketing costs.
  *Other expenses, net were $15 million in the third quarter, compared with
    $10 million in the prior year, and were $40 million in the year-to-date,
    compared with $30 million last year. The increases in both periods were
    due to higher interest expense.
  *The effective income tax rate was 38.4% in the third quarter, versus 33.9%
    a year ago. This increase was primarily due to the true-up of the prior
    year’s tax provision upon filing tax returns, as well as differences in
    the geographical mix of earnings. In the year-to-date, the rate was 35.6%,
    versus 33.6% a year ago when the tax rate benefitted from the reversal of
    a valuation allowance for certain deferred tax assets.
  *Cash and cash equivalents and short-term investments totaled $346 million
    at October 31, 2012, versus $297 million a year ago. Short-term and
    long-term debt totaled $978 million at October 31, 2012 and represented
    40% of stockholders’ equity, compared with $709 million and 31% a year
    ago.
  *Net inventories were $2.3 billion at October 31, 2012, or 11% higher than
    a year ago, primarily due to growth in finished goods inventory. This
    primarily reflected new store openings, expanded product assortments and
    higher product acquisition costs.
  *In the year-to-date, the Company has spent $54 million to repurchase
    813,000 shares of its Common Stock at an average cost of $66.54 per share.
    The Company did not repurchase any shares in the third quarter.

Mr. Kowalski added, “We continue to maintain a cautious near-term outlook
about global economic conditions. However, we expect to see improving results
in this holiday season, partly benefiting from easing year-over-year sales
comparisons, but also tied to the success of new TIFFANY & CO. stores we’ve
added this year, new product introductions and more product-focused marketing
communications.”

Outlook for 2012:

For the year ending January 31, 2013, management expects net earnings of
$409-$435 million, or $3.20-$3.40 per diluted share, compared with the
previous forecast of $3.55-$3.70 per diluted share. This forecast is based on
the following assumptions (which are approximate and may or may not prove
valid):

   a)  Worldwide net sales (in U.S. dollars) increasing 5-6% versus the
           previous expectation of 6-7% growth.
           Adding a total of 28 (net) Company-operated stores including 13 in
      b)   the Americas, eight in Asia-Pacific, two in Europe, and commencing
           operation of five stores in the United Arab Emirates. This includes
           25 (net) stores already added in the year-to-date.
      c)   Operating margin below the prior year due to a decline in the gross
           margin.
      d)   Interest and other expenses, net of approximately $53-55 million.
      e)   An effective income tax rate of approximately 35%.
           In addition, management expects net inventories to increase 10% in
      f)   the full year and capital expenditures of $230 million, both
           unchanged from the previous forecasts.

Today’s Conference Call:

The Company will conduct a conference call today at 8:30 a.m. (Eastern Time)
to review actual results and the outlook. Please click on
http://investor.tiffany.com (“Events and Presentations”).

Next Scheduled Announcement:

The Company expects to report its November-December holiday sales results on
Thursday January 10, 2013. To be notified of future announcements, please
register at http://investor.tiffany.com  (“E-Mail Alerts”).

Tiffany & Co. operates jewelry stores and manufactures products through its
subsidiary corporations. Its principal subsidiary is Tiffany and Company. The
Company operates TIFFANY & CO. retail stores in the Americas, Asia-Pacific,
Japan, Europe and the United Arab Emirates, and also engages in direct selling
through Internet, catalog and business gift operations. For more information,
visit www.tiffany.com or call the shareholder information line at
800-TIF-0110.

This document contains certain “forward-looking” statements concerning the
Company’s objectives and expectations with respect to sales, products, store
openings, operating margin, interest and other expenses, the effective income
tax rate, net earnings, inventories, growth opportunities and capital
expenditures. Actual results might differ materially from those projected in
the forward-looking statements. Information concerning risk factors that could
cause actual results to differ materially is set forth in the Company’s Form
10-K, 10-Q and 8-K reports filed with the Securities and Exchange Commission.
The Company undertakes no obligation to update or revise any forward-looking
statements to reflect subsequent events or circumstances.

                        TIFFANY & CO. AND SUBSIDIARIES
                                 (Unaudited)

NON-GAAP MEASURES

Net Sales

The Company’s reported sales reflect either a translation-related benefit from
strengthening foreign currencies or a detriment from a strengthening U.S.
dollar.

The Company reports information in accordance with U.S. Generally Accepted
Accounting Principles (“GAAP”). Internally, management monitors its sales
performance on a non-GAAP basis that eliminates the positive or negative
effects that result from translating sales made outside the U.S. into U.S.
dollars (“constant-exchange-rate basis”). Management believes this
constant-exchange-rate basis provides a more representative assessment of
sales performance and provides better comparability between reporting periods.

The Company’s management does not, nor does it suggest that investors should,
consider such non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with GAAP. The
Company presents such non-GAAP financial measures in reporting its financial
results to provide investors with an additional tool to evaluate the Company’s
operating results. The following table reconciles sales percentage increases
(decreases) from the GAAP to the non-GAAP basis versus the previous year:

                                                              
                   Third Quarter 2012 vs. 2011                       Year-to-Date 2012 vs. 2011
                                                 Constant-                                      Constant-
                   GAAP           Translation       Exchange-Rate       GAAP           Translation       Exchange-Rate
                   Reported    Effect         Basis            Reported    Effect         Basis
Net Sales:
Worldwide          4    %         (1    )%          5       %           4    %         (1    )%          5       %
Americas           3    %         –                 3       %           2    %         –                 2       %
Asia-Pacific       2    %         –                 2       %           6    %         –                 6       %
Japan              –              (3    )%          3       %           8    %         –                 8       %
Europe             6    %         (5    )%          11      %           2    %         (7    )%          9       %
Comparable
Store Sales:
Worldwide          –              (1    )%          1       %           –              (1    )%          1       %
Americas           –              (1    )%          1       %           (2   )%        –                 (2      )%
Asia-Pacific       (3   )%        1     %           (4      )%          –              –                 –
Japan              2    %         (3    )%          5       %           9    %         –                 9       %
Europe             2    %         (6    )%          8       %           (3   )%        (6    )%          3       %
                                                                                                         

Net Earnings

The accompanying press release presents net earnings and highlights prior year
nonrecurring items in the text. Management believes excluding such items
presents the Company’s year-to-date results on a more comparable basis to the
corresponding period in the prior year, thereby providing investors with an
additional perspective to analyze the results of operations of the Company at
October 31, 2012. The following table reconciles GAAP net earnings and net
earnings per diluted share (“EPS”) to non-GAAP net earnings and net earnings
per diluted share, as adjusted:

                                              
                     Nine Months Ended               Nine Months Ended
                     October 31, 2012             October 31, 2011
                     $              Diluted       $              Diluted
(in thousands,
except per        (after tax)    EPS        (after tax)    EPS
share amounts)
Net earnings,        $  236,514        $  1.85       $  260,795        $  2.02
as reported
                                                                          
Headquarters           —             —         25,994        0.20
relocation ^a
                                                                          
Net earnings,        $  236,514     $  1.85    $  286,789     $  2.22
as adjusted
                                                                       

^a On a pre-tax basis includes charges of $213,000 within cost of sales and
$42,506,000 within selling, general and administrative expenses for the nine
months ended October 31, 2011 associated with Tiffany’s consolidation of its
New York headquarters staff within one location.

                                                               
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share amounts)
                                   
                                                                           
                                                                           
                                                                           
                        Three Months Ended             Nine Months Ended October
                         October 31,                     31,
                         2012            2011            2012              2011
Net sales              $ 852,741       $ 821,767       $ 2,558,480       $ 2,455,497
                                                                           
Cost of sales            388,452         345,918         1,126,011         1,021,258
                                                                           
Gross profit             464,289         475,849         1,432,469         1,434,239
                                                                           
Selling, general
and                      346,994         329,672         1,025,609         1,011,556
administrative
expenses
                                                                           
Earnings from            117,295         146,177         406,860           422,683
operations
                                                                           
Interest and
other expenses,          14,783          10,393          39,587            30,159
net
                                                                           
Earnings from
operations               102,512         135,784         367,273           392,524
before income
taxes
                                                                           
Provision for            39,333          46,095          130,759           131,729
income taxes
                                                                           
Net earnings           $ 63,179        $ 89,689        $ 236,514         $ 260,795
                                                                           
                                                                           
Net earnings per
share:
                                                                           
Basic                  $ 0.50          $ 0.71          $ 1.87            $ 2.04
Diluted                $ 0.49          $ 0.70          $ 1.85            $ 2.02
                                                                           
                                                                           
Weighted-average
number of common
shares:
                                                                           
Basic                    126,737         127,210         126,697           127,614
Diluted                  127,902         128,812         127,914           129,329
                                                                           

                        
TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
                                                          
                                                                     
                                                                     
                                                                     
                                October            January           October
                                31,                31,               31,
                               2012              2012             2011
ASSETS
                                                                     
Current assets:
Cash and cash
equivalents and               $ 345,874          $ 442,190         $ 297,364
short-term investments
Accounts receivable,            160,604            184,085           170,181
net
Inventories, net                2,289,571          2,073,212         2,065,466
Deferred income taxes           106,744            83,124            93,790
Prepaid expenses and            180,013            107,064           117,706
other current assets
                                                                     
Total current assets            3,082,806          2,889,675         2,744,507
                                                                     
Property, plant and             800,225            767,174           752,151
equipment, net
Other assets, net               566,964            502,143           401,626
                                                                     
                              $ 4,449,995        $ 4,158,992       $ 3,898,284
                                                                     
LIABILITIES AND
STOCKHOLDERS' EQUITY
                                                                     
Current liabilities:
Short-term borrowings         $ 196,279          $ 112,973         $ 107,830
Current portion of              0                  60,822            61,247
long-term debt
Accounts payable and            284,189            328,962           287,012
accrued liabilities
Income taxes payable            17,958             60,977            1,459
Merchandise and other           65,996             62,943            64,360
customer credits
                                                                     
Total current                   564,422            626,677           521,908
liabilities
                                                                     
Long-term debt                  781,637            538,352           539,703
Pension/postretirement          322,033            338,564           212,268
benefit obligations
Other long-term                 205,720            186,802           187,635
liabilities
Deferred gains on               108,962            119,692           124,047
sale-leasebacks
Stockholders' equity            2,467,221          2,348,905         2,312,723
                                                                     
                              $ 4,449,995        $ 4,158,992       $ 3,898,284
                                                                     

Contact:

Tiffany & Co.
Mark L. Aaron, 212-230-5301
mark.aaron@tiffany.com
 
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