(IDEX Online) – Tiffany & Co. reported that worldwide net sales declined 3 percent in the year and rose 1 percent in the fourth quarter in its financial results for the full year and the three months ended January 31, 2017.

 

The results were in line with its previously issued guidance for the 2016 fiscal year.

 

Net earnings per diluted share declined 1 percent in the full year and 2 percent in the fourth quarter. The company generated more than $700 million of cash flow from operating activities in the full year.

 

Worldwide net sales of $4.0 billion were 3 percent below the prior year, reflecting a 5 percent decline in comparable store sales, the firm said in a statement. Performance was generally soft across all jewelry categories. On a constant-exchange-rate basis that excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales and comparable store sales declined 3 percent and 5 percent, respectively.

 

Net earnings were $446 million compared with the prior year's $464 million

 

Earnings in the prior year included an impairment of a loan to a diamond mining company as well as charges for staffing and occupancy reductions totaling $0.24 per diluted share. Excluding the aforementioned charges in both years, net earnings of $470 million, or $3.75 per diluted share, were lower than the prior year's $494 million, or $3.83 per diluted share, reflecting the lower sales and sales deleverage on selling, general and administrative expenses, partially offset by a higher gross margin and the favorable effect on net earnings per diluted share from share repurchases.

 

In the fourth quarter: worldwide net sales increased 1 percent to $1.2 billion and comparable store sales were unchanged from the prior year. On a constant-exchange-rate basis, worldwide net sales rose 2 percent and comparable store sales were unchanged from the prior year.

 

Net earnings were $158 million compared with $163 million in the prior year.

 

Michael J. Kowalski, Chairman of the Board and Interim Chief Executive Officer, said, "Despite macroeconomic and geopolitical challenges in the past year that we believe will continue in 2017, we strongly believe that Tiffany's strategies are sound and that we have meaningful growth opportunities. Our management team is focused on accelerating the execution of our strategies to deliver extraordinary products, communications and experiences that will delight our customers around the world. Through strong leadership and this accelerated execution, we believe we are well-positioned to deliver attractive total shareholder return over the long-term."

 

Net sales by region were as follows:

In the Americas, total sales declined 5 percent to $1.8 billion in the full year and 3 percent in the fourth quarter to $587 million, and comparable store sales declined 6 percent and 2 percent, respectively. On a constant-exchange-rate basis, total sales declined 5 percent in the full year and 3 percent in the fourth quarter and comparable store sales declined 5 percent and 2 percent, respectively. Management attributed the results in the full year to lower spending by U.S. customers and foreign tourists. In addition, sales in Tiffany's New York flagship store declined 11 percent in the full year and 7 percent in the fourth quarter, and represented less than 10 percent of worldwide net sales in both periods.

 

In the Asia-Pacific region, total sales of $1 billion in the full year were approximately equal to the prior year and total sales of $284 million in the fourth quarter were 9 percent above the prior year, benefitting from the opening of new stores, with comparable store sales declining 9 percent and 2 percent, respectively. On a constant-exchange-rate basis, total sales rose 1 percent in the full year and 10 percent in the fourth quarter, and comparable store sales declined 7 percent and 1 percent, respectively. During the year, management attributed performance in this region to increased purchasing by local customers and declines in spending by foreign tourists. In addition, there was strong retail sales growth in China, increased wholesale sales in Korea, a decelerating rate of retail sales decline in Hong Kong and varying performance in other countries.

 

In Japan, total sales rose 12 percent to $604 million in the full year and 15 percent to $185 million in the fourth quarter; comparable store sales increased 16 percent and 19 percent, respectively, while wholesale sales declined in both periods. On a constant-exchange-rate basis, total sales in the full year were approximately equal to the prior year while total sales in the fourth quarter were 8 percent above the prior year with comparable store sales growth of 5 percent and 12 percent, respectively, partly offset by the decline in wholesale sales. Management attributed sales growth in both periods to higher spending by local customers, with declines in spending by Chinese tourists.

 

In Europe, total sales of $458 million in the full year and $146 million in the fourth quarter were 10 percent and 7 percent, respectively, below the prior year and comparable store sales declined 14 percent and 9 percent, respectively. On a constant-exchange-rate basis, total sales declined 3 percent in the full year and rose 1 percent in the fourth quarter and comparable store sales declined 9 percent and 2 percent, respectively. Management attributed results throughout the year to lower spending by local customers and foreign tourists across continental Europe, while constant-exchange-rate sales growth in the United Kingdom was largely attributed to higher foreign tourist spending in the second half of the year.

 

Other sales of $99 million in the full year and $28 million in the fourth quarter were 8 percent and 12 percent, respectively, below the prior year. Comparable store sales declined 15 percent in the full year and 3 percent in the fourth quarter, due to lower retail sales in the United Arab Emirates. Wholesale sales of diamonds increased in the full year and were approximately unchanged in the fourth quarter.

 

Tiffany opened 11 company-operated stores in the full year and closed five locations, which, coupled with relocations of five stores, resulted in a net increase in gross retail square footage of approximately 3 percent. At January 31, 2017, the company operated 313 stores (125 in the Americas, 85 in Asia-Pacific, 55 in Japan, 43 in Europe, and five in the UAE), versus 307 stores a year ago (124 in the Americas, 81 in Asia-Pacific, 56 in Japan, 41 in Europe, and five in the UAE).

Other highlights:

 

Fiscal 2017 Outlook:

“For the fiscal year ending January 31, 2018 (fiscal year 2017), management's outlook calls for: (i) worldwide net sales increasing over the prior year by a low-single-digit percentage and by a mid-single-digit percentage on a constant-exchange-rate basis and (ii) net earnings per diluted share increasing by a high-single-digit percentage over 2016's earnings per diluted share of $3.55 and by a mid-single-digit-percentage over 2016's earnings per diluted share (excluding charges) of $3.75.

 

“These expectations are approximations and are based on the company's plans and assumptions, including: (i) worldwide gross retail square footage increasing 3 percent, net through 11 store openings, nine relocations and six closings; (ii) operating margin above the prior year entirely due to an expected increase in gross margin, with SG&A expenses increasing slightly faster than sales growth; (iii) interest and other expenses, net of approximately $40 million; (iv) an effective income tax rate consistent with the prior year; (v) the U.S. dollar in 2017 stronger overall than other foreign currencies on a year-over-year basis; and (vi) minimal benefit to net earnings per diluted share from share repurchases.