Tiffany's Earnings Beat, Ups Outlook

Zacks Equity Research

Tiffany & Company (TIF) posted better-than-expected third-quarter fiscal 2013 results due to surge in demand in the Asia-Pacific region. The quarterly earnings of 73 cents a share surpassed the Zacks Consensus Estimate of 58 cents and soared 49% from 49 cents in the prior-year quarter benefiting from higher sales and improved operating margin. Consequently, management provided an upbeat guidance.

Shares of Tiffany jumped 7.1% to $86.75 during pre-market trading hours.

Let’s Unveil the Picture

Tiffany posted net sales of $911.5 million during the quarter, up 7% from the prior-year quarter, on the heels of healthy performance of stores in the Americas, Asia-Pacific and Europe regions and due to new collection launches. Total revenue also came ahead of the Zacks Consensus Estimate of $892 million. In constant currencies, net sales jumped 11%, whereas comparable-store sales climbed 7%.

By geographic segment, sales in the Americas grew 4% to $417 million, while comps rose by 1%; sales in the Asia-Pacific region climbed 27% to $238 million, whereas comps increased 20%; sales in Japan declined 13% to $128 million and comps dipped 16%; and sales in Europe jumped 7% to $104 million and comps increased 4%. Other sales surged 14% to $24 million.

In constant currencies, sales in the Americas rose 5%, whereas comps grew 1% during the quarter; sales in the Asia-Pacific region grew 29%, whereas comps rose 22%; sales in Japan advanced 9%, while comps grew 5%; and sales in Europe climbed 4%, whereas comps rose 2%.

Gross profit for the quarter increased 11.9% to $519.5 million, while gross margin expanded 260 basis points to 57% due to lower product cost and increase in prices. Operating income jumped 31% to $153.6 million, whereas operating increased 310 basis points to 16.9%.

Stores Update

Tiffany opened 6 outlets during the quarter. The company plans to add net 14 stores in fiscal 2013 with 6 in the Americas, 7 in Asia-Pacific, 3 in Europe and closing 1 location each in Asia-Pacific and Japan.

As of Oct 31, 2013, the company operated 283 stores (120 in the Americas, 68 in Asia-Pacific, 54 in Japan, 36 in Europe and 5 in the U.A.E.).

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents of $521.2 million, and total short-term and long-term debt of $1,007.7 million, reflecting 36% of shareholders equity compared with 40% in the prior-year. Management forecasted capital expenditures of approximately $225 million and free cash flow of $300 million for fiscal 2013.

Strolling Through Guidance

Tiffany now projects fiscal 2013 earnings between $3.65 and $3.75 per share, up from its previous forecast of $3.50 to $3.60. The current Zacks Consensus Estimate for fiscal 2013 is $3.62 per share.

Tiffany now expects total net sales growth in mid-single digit for fiscal 2013. In constant currencies, total net sales are projected to increase in the high-single-digit. Operating earnings is envisioned to grow at a rate higher than that of sales.

Tiffany currently has a Zacks Rank #3 (Hold). Other better ranked retail stocks that look promising and are expected to continue with their upbeat performance include Hanesbrands Inc. (HBI), carrying a Zacks Rank #1 (Strong Buy), DSW Inc. (DSW) and Five Below, Inc. (FIVE), both sporting a Zacks Rank #2 (Buy).

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