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| TIF > SEC Filings for TIF > Form 10-Q on 2-Dec-2008 | All Recent SEC Filings |
2-Dec-2008
Quarterly Report
OVERVIEW
Tiffany & Co. (the "Company") is a holding company that operates through its subsidiary companies. The Company's principal subsidiary, Tiffany and Company, is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. It also sells timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. Through Tiffany and Company and other subsidiaries, the Company is engaged in product design, manufacturing and retailing activities.
Effective with the first quarter of 2008, management has changed segment reporting to reflect operating results for the following regions: the Americas, Asia-Pacific and Europe. Prior year results have been revised to reflect this change. The Company has expanded its global reach and management has determined it is more meaningful to assess performance on a region-by-region basis, rather than on a channel of distribution basis. The Company's reportable segments are as follows:
o "Americas" includes sales in TIFFANY & CO. stores in the U.S., Canada and Latin/South America, as well as sales in those markets of TIFFANY & CO. products through business-to-business, Internet, catalog and wholesale operations.
o "Asia-Pacific" includes sales in TIFFANY & CO. stores in the Asia-Pacific region (which includes sales in Japan, in Asia-Pacific countries outside Japan, and in the Middle East), as well as sales in those markets of TIFFANY & CO. products through business-to-business, Internet and wholesale operations.
o "Europe" includes sales in TIFFANY & CO. stores in Europe, as well as sales in those markets of TIFFANY & CO. products through business-to-business, Internet and wholesale operations.
o The "Other" channel of distribution includes all non-reportable segments. Sales in the Other channel of distribution primarily consist of wholesale sales of diamonds obtained through bulk purchases that were subsequently deemed not suitable for the Company's needs. In addition, Other includes worldwide sales made by businesses operated under trademarks or tradenames other than TIFFANY & CO. and earnings received from third party licensing agreements.
All references to years relate to fiscal years ended or ending on January 31 of the following calendar year.
Highlights
o Worldwide net sales decreased 1% in the three months ("third quarter") and increased 7% in the nine months ("year-to-date") ended October 31, 2008.
o Worldwide comparable store sales decreased 7% in the third quarter and decreased 2% in the year-to-date on a constant-exchange-rate basis (see Non-GAAP Measures).
o Net earnings from continuing operations decreased 58% to $43,777,000 in the third quarter and 16% to $188,937,000 in the year-to-date. Net earnings from continuing operations per diluted share decreased 53% in the third quarter and 7% in the year-to-date. Prior year third quarter and year-to-date net earnings and earnings per diluted share included the following:
o $105,051,000 pre-tax gain (recorded as other operating income), or $0.48 per diluted share after tax, from the sale-leaseback of the land and building housing the TIFFANY & CO. Flagship store in Tokyo's Ginza shopping district.
o The Company contributed $10,000,000, or $0.04 per diluted share after tax, recorded within selling, general and administrative expenses, to The Tiffany & Co. Foundation, funded with the proceeds from the immediately preceding transaction.
o The Company repurchased and retired 2.3 million and 5.4 million shares of its Common Stock during the third quarter and year-to-date of 2008.
NON-GAAP MEASURES
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 international sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars ("constant-exchange-rate basis"). Management believes this constant-exchange-rate measure provides a more representative assessment of the 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 2008 vs. 2007 Year-to-Date 2008 vs. 2007
---------------------------------------- ----------------------------------------
Constant- Constant-
GAAP Translation Exchange- GAAP Translation Exchange-
Reported Effect Rate Basis Reported Effect Rate Basis
---------------------------------------- ----------------------------------------
Net Sales:
----------
Worldwide (1)% 1 % (2)% 7 % 3 % 4 %
Americas (7)% (1)% (6)% 1 % - 1 %
U.S. (9)% - (9)% (1)% - (1)%
Asia-Pacific 3 % 4 % (1)% 14 % 9 % 5 %
Japan 1 % 9 % (8)% 8 % 12 % (4)%
Other Asia-Pacific 9 % (3)% 12 % 23 % 3 % 20 %
Europe 16 % (8)% 24 % 30 % 2 % 28 %
Comparable Store Sales:
-----------------------
Worldwide (6)% 1 % (7)% 1 % 3 % (2)%
Americas (12)% - (12)% (4)% 1 % (5)%
U.S. (14)% - (14)% (6)% - (6)%
Asia-Pacific 2 % 5 % (3)% 9 % 8 % 1 %
Japan 2 % 9 % (7)% 5 % 12 % (7)%
Other Asia-Pacific 2 % (2)% 4 % 15 % 3 % 12 %
Europe 3 % (5)% 8 % 14 % 4 % 10 %
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RESULTS OF OPERATIONS
---------------------
Certain operating data as a percentage of net sales were as follows:
Third Quarter Year-to-Date
----------------------- ------------------------
2008 2007 2008 2007
----------------------- ------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 43.7 45.6 42.9 44.5
----------------------- ------------------------
Gross profit 56.3 54.4 57.1 55.5
Other operating income - 16.8 - 5.6
Selling, general and administrative expenses 43.6 46.0 41.6 42.1
----------------------- ------------------------
Earnings from continuing operations 12.7 25.2 15.5 19.0
Other expenses, net 2.3 0.4 0.9 0.4
----------------------- ------------------------
Earnings from continuing operations before income taxes 10.4 24.8 14.6 18.6
Provision for income taxes 3.3 8.4 5.2 6.7
----------------------- ------------------------
Net earnings from continuing operations 7.1 16.4 9.4 11.9
Loss from discontinued operations, net of tax - (0.2) - (1.5)
----------------------- ------------------------
Net earnings 7.1% 16.2% 9.4% 10.4%
======================= ========================
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Net Sales
---------
Net sales were as follows:
Third Quarter
-----------------------------------------------------------------------------------------
(in thousands) 2008 2007 Increase (Decrease)
----------------------------------------------------------------------------------------------------------------------
Americas $ 331,783 $ 355,346 $ (23,563) (7)%
Asia-Pacific 205,992 199,470 6,522 3%
Europe 58,157 50,075 8,082 16%
Other 22,298 22,432 (134) (1)%
-----------------------------------------------------------------------------------------
$ 618,230 $ 627,323 $ (9,093) (1)%
=========================================================================================
Year-to-Date
-----------------------------------------------------------------------------------------
(in thousands) 2008 2007 Increase
----------------------------------------------------------------------------------------------------------------------
Americas $ 1,127,754 $ 1,117,635 $ 10,119 1%
Asia-Pacific 642,262 565,526 76,736 14%
Europe 189,302 146,178 43,124 30%
Other 59,464 56,275 3,189 6%
-----------------------------------------------------------------------------------------
$ 2,018,782 $ 1,885,614 $ 133,168 7%
=========================================================================================
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Comparable Store Sales. Reference will be made to "comparable store sales" below. A store's sales are included in comparable store sales when the store has been open for more than 12 months. In markets other than Japan, sales for relocated stores are included in comparable store sales if the relocation occurs within the same geographical market. In Japan (included in the Asia-Pacific segment), sales for a new store or boutique are not included if the boutique was relocated from one department store to another or from a department store to a free-standing location. In all markets, the results of a store in which the square footage has been expanded or reduced remain in the comparable store base.
Americas. Total sales in the Americas region decreased in the third quarter and increased in the year-to-date. Non-comparable U.S. retail store sales grew $11,962,000 in the third quarter and $47,329,000 in the year-to-date while comparable U.S. retail store sales declined 14%, or $39,373,000, in the third quarter and 6%, or $52,302,000 in the year-to-date. Comparable retail store sales in Other America regions grew $2,025,000 in the third quarter and $10,750,000 in the year-to-date. The U.S. comparable store sales decline in the third quarter and year-to-date was due to a decline in transactions which more than offset an increase in the average price per transaction. Management
attributes this decline to the challenging economic environment in the U.S. New York Flagship store sales decreased 5% in the third quarter, and increased 5% in the year-to-date, compared to a decline in comparable branch store sales of 16% and 9% in those same periods. Transactions and sales decreased in the New York Flagship store in the quarter and increased in the year-to-date. The New York Flagship store benefited from higher levels of sales to foreign tourists in both periods.
Asia-Pacific. Total sales in the Asia-Pacific region increased in the third quarter and year-to-date primarily due to growth in comparable store sales (2%, or $3,024,000, in the third quarter and 9%, or $46,076,000, in the year-to-date) and non-comparable store sales ($4,265,000 in the third quarter and $24,558,000 in the year-to-date). In the third quarter, on a constant-exchange-rate basis, Asia-Pacific region sales decreased 1% and comparable store sales decreased 3% (consisting of a 7% decline in Japan comparable store sales which more than offset a 4% increase in comparable store sales in countries other than Japan). In the year-to-date, on a constant-exchange-rate basis, Asia-Pacific region sales increased 5% and comparable store sales increased 1% (consisting of a 7% decline in Japan comparable store sales and a 12% increase in comparable store sales in countries other than Japan). The overall increase in Asia-Pacific region sales resulted from an increase in the average price per unit sold in both the third quarter and year-to-date. In both periods, Asia-Pacific region unit growth was hampered by declines in unit volume in Japan.
Europe. Total sales in the Europe region increased in the third quarter and year-to-date primarily due to growth in non-comparable store sales ($6,060,000 in the third quarter and $18,980,000 in the year-to-date) and comparable store sales (3%, or $1,001,000, in the third quarter and 14%, or $16,231,000, in the year-to-date). On a constant-exchange-rate basis, Europe region sales increased 24% in the third quarter and 28% in the year-to-date and comparable store sales rose 8% and 10% in those periods, reflecting growth in London and in most Continental European markets. The total increase in Europe region sales resulted from an increase in the number of units sold in both the third quarter and year-to-date.
Other. Other sales decreased slightly in the third quarter primarily due to decreased sales at Iridesse. Other sales increased in the year-to-date primarily due to increased wholesale sales of diamonds that were deemed not suitable for the Company's needs, earnings from licensing agreements and sales growth in IRIDESSE stores. Wholesale diamond sales increased 1% to $20,220,000 in the third quarter and rose 3% to $50,766,000 in the year-to-date following substantial increases in the prior-year periods.
Store Data. Management expects to open 22 (net) Company-operated TIFFANY & CO. stores and boutiques in 2008, increasing the store-base by 12%. The Company has decided to moderate the rate of new store openings in 2009 to approximately five stores in the Americas and approximately eight locations across Asia-Pacific and Europe. Openings of TIFFANY & CO. stores are:
Actual Openings Expected Openings
Location (Closings) 2008 2008
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Americas:
Los Angeles - Westfield Topanga Center, California First Quarter
West Hartford, Connecticut Second Quarter
Glendale, California Third Quarter
Pittsburgh, Pennsylvania Third Quarter
Uncasville - Mohegan Sun, Connecticut Third Quarter
Columbus, Ohio Fourth Quarter
Asia-Pacific:
Fukuoka, Japan First Quarter
Osaka, Japan First Quarter
Shizuoka, Japan First Quarter
Tokyo, Japan First Quarter
Chengdu, China First Quarter
Shenyang, China First Quarter
Shandong, China Second Quarter
Perth, Australia Second Quarter
Seoul - Hyundai Department Store, Korea (First Quarter)
Seoul - Shinsegae Gangnam, Korea Second Quarter
Seoul - Samsung Plaza, Korea Third Quarter
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Actual Openings Expected Openings
Location 2008 2008
------------------------------------------------------------------------------------------------------------------
Europe:
London - Heathrow Airport, United Kingdom First Quarter
Brussels, Belgium Second Quarter
London - Westfield, United Kingdom Third Quarter
Madrid, Spain Third Quarter
Dusseldorf, Germany Third Quarter
Berlin, Germany Third Quarter
Dublin, Ireland Fourth Quarter
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Gross Margin
Gross margin (gross profit as a percentage of net sales) increased in the third
quarter by 1.9 percentage points and in the year-to-date by 1.6 percentage
points primarily due to favorable changes in product sales mix, the benefit from
the Company's precious metal hedging program and a reduction in anticipated
management incentive compensation. To a lesser extent, gross margin also
improved in the year-to-date due to changes in geographic mix. To address rising
product costs, the Company has, in certain instances, increased retail prices.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses decreased $18,904,000, or 7%, in the third quarter. In the prior
year, the Company used proceeds from the sale-leaseback of the land and building
housing the TIFFANY & CO. Flagship store in Tokyo's Ginza shopping district to
contribute $10,000,000 to The Tiffany & Co. Foundation, a private charitable
foundation established by the Company. Excluding the contribution, SG&A expenses
decreased $8,904,000 or 3% primarily due to decreased labor and benefit costs of
$8,108,000 as a result of a reduction in anticipated management incentive
compensation which more than offset incremental costs related to new stores.
Changes in foreign currency exchange rates increased SG&A expenses in the third
quarter by approximately $2,000,000 compared to the prior year. In the
year-to-date, SG&A expenses increased $45,588,000, or 6%. Excluding the
previously-mentioned contribution, SG&A expenses in the year-to-date increased
$55,588,000, or 7%, primarily due to increased labor and benefit costs of
$13,163,000 and increased depreciation and store occupancy expenses of
$21,715,000, (both of which are largely due to new and existing stores), as well
as an increase of $8,678,000 in marketing expenses. Changes in foreign currency
exchange rates increased SG&A expenses by approximately $19,000,000 compared to
the prior year. SG&A expenses as a percentage of net sales decreased by 2.4
percentage points in the third quarter and 0.5 percentage point in the
year-to-date. Excluding the previously-mentioned contribution, SG&A expenses as
a percentage of net sales decreased by 0.8 percentage point in the third quarter
and in the year-to-date was equal to the prior year.
Earnings from Continuing Operations
-----------------------------------
Third Quarter % of Net Third Quarter % of Net
(in thousands) 2008 Sales* 2007 Sales*
--------------------------------------------------------------------------------------------------------------------
Earnings (losses) from continuing
operations:
Americas $ 48,369 14.6% $ 48,749 13.7%
Asia-Pacific 49,010 23.8% 44,246 22.2%
Europe 7,843 13.5% 6,914 13.8%
Other (3,433) (15.4%) (6,964) (31.0%)
----------------------------------------------------------------------------
101,789 92,945
Unallocated corporate expenses (23,268) 3.8% (39,801) 6.3%
Other operating income - 105,051
----------------------------------------------------------------------------
Earnings from continuing
operations $ 78,521 12.7% $ 158,195 25.2%
============================================================================
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* Percentages represent earnings (losses) from continuing operations as a percentage of each segment's net sales.
Earnings from continuing operations decreased 50% in the third quarter. Other operating income for 2007 includes the $105,051,000 gain from the sale-leaseback of the land and building housing the TIFFANY & CO. Flagship store
in Tokyo's Ginza shopping district. Excluding other operating income, earnings from continuing operations would have increased 48%. On a segment basis, the ratio of earnings (losses) from continuing operations (before the effect of unallocated corporate expenses, other operating income and other expenses, net) to each segment's net sales in the third quarter of 2008 and 2007 was as follows:
o Americas - the ratio increased 0.9 percentage point primarily due to an increase in gross margin (due to favorable changes in product sales mix and the benefit from the Company's precious metal hedging program) partly offset by an increase in the operating expense ratio as the sales shortfall was greater than the reduction in operating expenses, as noted in SG&A expenses above;
o Asia-Pacific - the ratio increased 1.6 percentage points primarily due to reduced operating expenses as noted in SG&A expenses above;
o Europe - the ratio decreased 0.3 percentage point primarily due to increased operating expenses (related to new stores) partly offset by an increase in gross margin (due to changes in product sales mix); and
o Other - The operating loss in each year primarily reflects the operating performance of the Company's Iridesse subsidiary.
Year-to-Date % of Net Year-to-Date % of Net
(in thousands) 2008 Sales* 2007 Sales*
--------------------------------------------------------------------------------------------------------------------
Earnings (losses) from continuing
operations:
Americas $ 210,257 18.6% $ 198,433 17.8%
Asia-Pacific 159,270 24.8% 140,727 24.9%
Europe 34,931 18.5% 25,205 17.2%
Other (9,429) (15.9%) (16,256) (28.9%)
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395,029 348,109
Unallocated corporate expenses (81,704) 4.0% (94,261) 5.0%
Other operating income - 105,051
----------------------------------------------------------------------------
Earnings from continuing
operations $ 313,325 15.5% $ 358,899 19.0%
============================================================================
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* Percentages represent earnings (losses) from continuing operations as a percentage of each segment's net sales.
Earnings from continuing operations decreased 13% in the year-to-date. Excluding other operating income, earnings from continuing operations would have increased 23%. On a segment basis, the ratio of earnings (losses) from continuing operations (before the effect of unallocated corporate expenses, other operating income and other expenses, net) to each segment's net sales in the year-to-date of 2008 and 2007 was as follows:
. . .
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