Tiffany Reports First Quarter Results

  Tiffany Reports First Quarter Results

Business Wire

NEW YORK -- May 28, 2013

Tiffany & Co. (NYSE: TIF) today reported financial results for the first
quarter ended April 30, 2013. Worldwide net sales increased 9% and net
earnings rose 3%. In addition, management maintained its fiscal 2013 forecast.

In the three months (“first quarter”) ended April 30, 2013:

  *Worldwide net sales increased 9% to $895 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 increased 13% and comparable
    store sales rose 8%.
  *Net earnings increased 3% to $84 million, or $0.65 per diluted share,
    versus the prior year’s $82 million, or $0.64 per diluted share. Expenses
    of $9 million, or $0.05 per diluted share, were recorded in the quarter
    for recent staff and occupancy reductions; excluding those costs, net
    earnings increased 10% to $89 million, or $0.70 per diluted share (see
    “Non-GAAP Measures” schedule).

Michael J. Kowalski, chairman and chief executive officer, said, “We are
pleased with this start to the year. Worldwide, first quarter sales exceeded
our expectations, enabling us to improve our sales leverage on fixed expenses
and achieve earnings growth. In addition, we celebrated Tiffany’s 175^th
anniversary with our very successful Blue Book event and promotional
activities surrounding the debut of the film The Great Gatsby, for which we
designed the jewelry.”

Net sales highlights were as follows:

  *In the Americas region, total sales rose 6% to $408 million. On a
    constant-exchange-rate basis, total sales increased 6%; comparable store
    sales rose 3% with relatively stronger growth in the New York flagship
    store. Sales in New York benefitted from purchases by customers who
    attended the Blue Book event.
  *In the Asia-Pacific region, total sales of $223 million were 15% higher
    than a year ago. On a constant-exchange-rate basis, total sales increased
    14%, due to sales growth in Greater China and most other countries, and
    comparable store sales rose 9%.
  *Total sales in Japan increased 2% to $145 million despite a negative
    translation effect from a weakening yen. On a constant-exchange-rate
    basis, total sales increased 20% and comparable store sales rose 21% due
    to particularly strong growth in Tiffany’s engagement and higher-end
    jewelry categories.
  *In Europe, total sales of $93 million were 6% higher than last year due to
    sales growth across continental Europe. On a constant-exchange-rate basis,
    total sales and comparable store sales rose 8% and 6% respectively.
  *Other sales tripled to $27 million from $9 million in the prior year,
    primarily reflecting the conversion in July 2012 of five TIFFANY & CO.
    stores in the United Arab Emirates from independently-operated to
    Company-operated.
  *In the first quarter, Tiffany opened one store, in Xi’an, China and closed
    one in Taichung, Taiwan. At April 30, 2013, the Company operated 275
    stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe
    and five in the U.A.E.), compared with 251 stores (105 in the Americas, 59
    in Asia-Pacific, 55 in Japan and 32 in Europe) a year ago.

Other financial highlights:

  *Gross margin (gross profit as a percentage of net sales) was 56.2% versus
    last year’s 57.3%. As expected, the decline continued to reflect a shift
    in sales mix toward higher-priced, lower gross margin products. In
    addition, gross margin, in comparison to recent quarters, benefitted from
    diminished product cost pressure and recent price increases.
  *SG&A (selling, general and administrative) expenses increased 8% in the
    quarter. The increase included $9 million of expenses tied to cost
    reduction initiatives related to staffing reductions, as well as
    subleasing of office space at a loss; excluding such costs, SG&A expenses
    would have increased 6% (see “Non-GAAP Measures” schedule) due to new
    store-related costs and higher marketing spending for the Blue Book event.
  *Other expenses, net were $13 million this year, versus last year’s $11
    million, primarily due to increased interest expense related to higher
    average borrowing levels.
  *The effective income tax rate was 34.9% compared with 34.5% last year.
  *The Company had cash and cash equivalents of $465 million at April 30,
    2013, versus $322 million in the prior year. Short-term and long-term debt
    totaled $974 million at April 30, 2013 and represented 37% of
    stockholders’ equity, compared with $834 million and 35% a year ago.
  *Net inventories were $2.3 billion at April 30, 2013, or 4% higher than a
    year ago. A 12% increase in finished goods inventories to support new
    store openings and expanded product assortments was partly offset by a 5%
    decline in combined raw material and work-in-process inventories. On a
    constant-exchange-rate basis, net inventories were 7% higher than a year
    ago.

Mr. Kowalski added, “While first quarter sales and earnings exceeded our
expectations, we are maintaining our earnings forecast for the full year,
mindful of continuing soft sales results in the Americas and the negative
translation effect of a weaker yen. However, we remain focused on exciting
initiatives for this year, including jewelry introductions highlighted by our
GREAT GATSBY and ZIEGFELD collections, the HARMONY engagement ring and a
reinterpretation of our iconic ATLAS collection. Tiffany’s global store base
is growing this year with a planned net addition of 14 stores, and we will be
launching our redesigned website later this year.”

Outlook for 2013:

For the fiscal year ending January 31, 2014, management forecasts net earnings
in a range of $3.43-$3.53 per diluted share, unchanged from its
previously-published outlook and versus $3.25 per diluted share in 2012. This
forecast is based on the following assumptions (which are approximate and may
or may not prove valid):

a) Worldwide net sales increasing by a mid-single-digit percentage in U.S
dollars (a high-single-digit percentage increase on a constant-exchange-rate
basis).

b) Adding a net of 14 Company-operated stores (opening six in the Americas,
seven in Asia-Pacific and three in Europe, and closing one each in Japan and
Taiwan), as well as refurbishing a number of existing locations around the
world.

c) Operating earnings increasing in line with sales growth; an improvement in
the SG&A expense ratio, due to sales leverage on fixed costs, is expected to
be offset by a slight decline in gross margin largely tied to a sales mix
skewed toward higher-priced, lower margin, product categories.

d) Interest and other expenses, net of $58 million.

e) An effective income tax rate of 35%.

f) Management expects net earnings in the second quarter to be equal to the
prior year based on an expected mid-single-digit sales increase, with earnings
growth in the third and fourth quarters. This forecast excludes $0.05 per
diluted share of expenses tied to cost-reduction initiatives that were
recorded in the first quarter.

g) Net inventories increasing 5%; capital expenditures of $230 million (versus
$220 million in 2012); and free cash flow (cash flow from operating activities
less capital expenditures) of $300 million (versus $109 million in 2012).

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 second quarter financial results on Tuesday
August 27, 2013. For notification of future announcements, 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 and closings, operating margin, interest and other expenses, the
effective income tax rate, net earnings, inventories, growth opportunities,
capital expenditures and free cash flow. 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

The Company reports information in accordance with U.S. Generally Accepted
Accounting Principles (“GAAP”). The Company’s management does not, nor does it
suggest that investors should, consider 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.

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. 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 following table reconciles sales percentage increases (decreases) from the
GAAP to the non-GAAP basis versus the previous year:

                       First Quarter 2013 vs. 2012
                        GAAP Reported  Translation        Constant-Exchange-
                                        Effect              Rate Basis
Net Sales:                                               
Worldwide               9 %             (4) %               13 %
Americas                6 %             –                   6 %
Asia-Pacific            15 %            1 %                 14 %
Japan                   2 %             (18)%               20 %
Europe                  6 %             (2) %               8 %
Comparable Store
Sales:
Worldwide               4 %             (4) %               8 %
Americas                3 %             –                   3 %
Asia-Pacific            9 %             –                   9 %
Japan                   3 %             (18)%               21 %
Europe                  4 %             (2) %               6 %
                                                            

Net Earnings

The accompanying press release presents net earnings and highlights expenses
tied to cost reduction initiatives in the text. Management believes excluding
such items presents the Company’s quarter-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 April 30, 2013. 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:

                                           Quarter Ended
                                         
                                           April 30, 2013
                                           $             Diluted
(in thousands, except per share amounts)              
                                           (after tax)   EPS
Net earnings, as reported                  $ 83,577     $ 0.65
Cost reduction initiatives ^a              5,785        0.05
Net earnings, as adjusted                  $ 89,362     $ 0.70
                                                         

^a On a pre-tax basis, includes charges of $9,379,000 within SG&A for the
first quarter of 2013 associated with severance related to staffing reductions
and subleasing of certain office space for which only a portion of the
Company’s future rent obligations will be recovered.

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share amounts)
                                             
                                               Three Months Ended April 30,
                                                 2013              2012
Net sales                                      $ 895,484     $     819,170
                                                                   
Cost of sales                                    392,260           350,152
                                                                   
Gross profit                                     503,224           469,018
                                                                   
Selling, general and administrative expenses     362,066           334,033
                                                                   
Earnings from operations                         141,158           134,985
                                                                   
Interest and other expenses, net                 12,712            10,554
                                                                   
Earnings from operations before income taxes     128,446           124,431
                                                                   
Provision for income taxes                       44,869            42,897
                                                                   
Net earnings                                   $ 83,577      $     81,534
                                                                   
                                                                   
Net earnings per share:
                                                                   
Basic                                          $ 0.66        $     0.64
Diluted                                        $ 0.65        $     0.64
                                                                   
                                                                   
Weighted-average number of common shares:
                                                                   
Basic                                            127,318           126,723
Diluted                                          128,441           128,178
                                                                   

TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
                                                               
                                       April 30,     January 31,     April 30,
                                      2013         2013           2012
ASSETS
                                                                     
Current assets:
Cash and cash equivalents            $ 464,916     $ 504,838       $ 321,582
Accounts receivable, net               181,715       173,998         181,641
Inventories, net                       2,280,390     2,234,334       2,189,869
Deferred income taxes                  80,568        79,508          91,280
Prepaid expenses and other current     176,894       158,911         148,742
assets
                                                                     
Total current assets                   3,184,483     3,151,589       2,933,114
                                                                     
Property, plant and equipment, net     807,875       818,838         766,874
Other assets, net                      673,398       660,423         506,681
                                                                     
                                     $ 4,665,756   $ 4,630,850     $ 4,206,669
                                                                     
LIABILITIES AND STOCKHOLDERS'
EQUITY
                                                                     
Current liabilities:
Short-term borrowings                $ 216,898     $ 194,034       $ 242,768
Current portion of long-term debt      0             0               60,357
Accounts payable and accrued           280,956       295,424         285,193
liabilities
Income taxes payable                   30,817        30,487          31,971
Merchandise and other customer         69,213        66,647          62,074
credits
                                                                     
Total current liabilities              597,884       586,592         682,363
                                                                     
Long-term debt                         757,191       765,238         531,244
Pension/postretirement benefit         336,739       361,246         309,545
obligations
Other long-term liabilities            220,003       209,732         190,514
Deferred gains on sale-leasebacks      89,493        96,724          114,113
Stockholders' equity                   2,664,446     2,611,318       2,378,890
                                                                     
                                     $ 4,665,756   $ 4,630,850     $ 4,206,669
                                                                     

Contact:

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