The most successful companies have gone global: they have targeted multiple markets around the world. That way, when the economy of one region slows, other regional economies can usually pick up the slack.

 

What are some examples of companies which have achieved global success? Exhibit “A” would be Tiffany & Co. For the quarter ended April 2008, total global sales were up 12% (+8% on a constant currency basis), and earnings per share – the litmus test for Wall Street – surged by 28%. What drove these dramatic results? Market demand in Europe, the Asia-Pacific region (except Japan), the Middle East and Canada was very strong.  

           

Tiffany is no longer a “one trick pony” dependent on its U.S. stores to drive sales and profits; its sales by geographic region in the first fiscal quarter were split as the following graph illustrates. The “Americas” region includes sales from all channels – stores, online, catalog, B-to-B – in the U.S. and Canada, as well as Latin and South America. U.S. sales are estimated to be about half of the company’s total revenues.

 

 

Tiffany Sales by Geographic Region Source:  Company Reports

 

Overall, Tiffany has company-owned stores in 18 countries and representation in 30 countries through wholesale sales of its branded merchandise.

 

First Quarter: Reported Sales Up 12%; Pretax Profits Up 20%

Jewelers can no longer say “everyone is having a tough time in the current weak U.S. retailing environment.” Tiffany is clearly the exception. Granted, its sales gain in the U.S. was due almost entirely to the performance of its New York Flagship store where sales to overseas tourists surged. However, it does illustrate that some jewelers have figured out how to make lemonade out of lemons. The following table summarizes first quarter financial results for Tiffany & Company.

 

The following are highlights from Tiffany’s first quarter.

 

 

• Sales trends by markets are shown on the table below, based on constant-currency comparisons. For example, total worldwide sales for Tiffany were reported to be up 12% according to U.S. GAAP (Generally Accepted Accounting Principles), but were up 8% when adjusted to reflect currency swings over the past year. We believe “constant-currency” comparisons more accurately reflect reality.

• U.S. same-store sales flat – The company no longer reports total sales for the U.S. market; it now reports total sales for the Americas, including stores in the U.S., Canada, Mexico, and Brazil, as well as catalog, online, and business-to-business sales. However, it will continue to report same-store sales and provide some guidance about sales trends.
• Same-store sales advanced by a robust 16% in Tiffany’s New York Flagship Fifth Avenue store, driven entirely by spending from overseas visitors. For most overseas consumers, America is “on sale.”
• U.S. branch stores (excluding the New York Flagship unit) posted a same-store sales decline of 4% in the first quarter ended April. Geographically, the softness was broad-based. Markets which posted better than average results included Chicago, Kansas City, Bal Harbor, Portland, San Francisco, and Palm Beach. Stores in Hawaii and Guam also experienced improved sales due to increased spending by Japanese tourists.
• The number of transactions in the U.S. was flat on a total sales basis, including transactions in newly opened stores; on a same-store basis, the number of transactions was down, year-over-year.
• Sales of merchandise priced under $500 at retail was soft, but all other price ranges from $500 to $50,000 and above posted gains year-over-year.
• Tiffany management commented that its new Patek Phillipe boutique in its New York Flagship store was performing well. This is one of only five Patek Phillipe boutiques in the world.
• Elsewhere in the Americas, Tiffany’s stores in Toronto and Vancouver generated strong sales increases. Stores in Central and South America generated slight sales gains.

• In the Asia-Pacific region, which includes Japan, other Asia-Pacific markets, and the Middle East, total sales rose by 10% (constant currency), with same-store sales up 4%.
• In Japan, sales in yen (constant currency) were down 3%, with same-store sales down 7%.
• Outside Japan, Asia Pacific same-store sales climbed by a dramatic 22%, with total sales up 32%. The company’s seven stores in Hong Kong posted exceptional sales growth in the first fiscal quarter. 

• In Europe, total sales rose by 30%, with same-store sales up 12%.
• All seven stores in London generated solid sales increases.
• France and Italy were among the strongest markets in the European region.

• Sales in the “Other” division were down 21% due to a decline in wholesale sales of diamonds. These sales are highly cyclical, and the quarter-to-quarter swings are not indicative of anything material.
• Management did not comment on sales from its Iridesse stores.
• Earnings from its license agreement with Luxotica related to the sale of branded Tiffany eyeglasses were strong.  

• By merchandise category, here are Tiffany’s strong and not-so-strong categories:
• Engagement jewelry – strong in all markets
• Silver jewelry – strong in all markets due to demand for charms
• Statement jewelry – solid gains
• Collections – solid demand
• Eyewear collection – strong gains
• Designer jewelry – slight gains

• Other financial results – Tiffany’s financials remain strong, with solid gains in financial ratios as well as a strengthening balance sheet.
• Tiffany’s gross margin rose to 57.1% from 56.1% last year due to leverage of fixed costs and a smaller sales mix of “no-margin” wholesale diamond sales.
• Tiffany’s operating expense ratio rose slightly to 41.6% of sales from 41.3% of sales last year due to higher labor, occupancy, and advertising costs. In addition, currency translation hurt.

• Tiffany’s outlook remains bright.
• Management expects worldwide sales to be up about 10% this year.
• The number of new stores will rise by 13%, with square footage up about 10%. The company plans to open its first small-format unit in Los Angeles later this year.
• In the Americas, management is projecting low single digit same-store sales gains in the U.S. market. Second quarter same-store sales comparisons are expected to be negative, with some improvement coming in the third and fourth quarters.
• In the Asia-Pacific region, sales are expected to be up in the low teen range, though sales in Japan are likely to be down.
• European sales should be up by more than 20% this year.
• Because of the strength in demand for charms, Tiffany plans to introduce platinum charms and charms with diamonds later this year.
• The company continues to work with Swatch to develop a strategy for the production and distribution of Tiffany branded watches.

Final comment: Wall Street still doesn’t appear to “get it” with Tiffany. The stock market took TIF shares down substantially early this year, and only recently have they begun climbing back. The evidence is clear: Tiffany is doing all of the right things, based on results from markets were the economy is showing moderate or better growth. When the U.S. economy comes back, Tiffany will once again post solid gains. Unfortunately, Wall Street defines “long term outlook” as what will happen between now and this afternoon.