Delaware | 1-9494 | 13-3228013 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
200 Fifth Avenue, New York, New York | 10010 | |||
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits |
99.1 | News Release dated November 25, 2014. |
TIFFANY & CO. | ||
(Registrant) | ||
By: /s/ Leigh M. Harlan | ||
Leigh M. Harlan | ||
Senior Vice President, Secretary | ||
and General Counsel | ||
Date: November 26, 2014 |
Exhibit No. | Description |
99.1 | News Release dated November 25, 2014. |
Fifth Avenue & 57th Street | Contact: | |||
New York, N.Y. 10022 | Mark L. Aaron | |||
212-230-5301 | ||||
mark.aaron@tiffany.com |
• | Worldwide net sales rose 5% to $960 million. On a constant-exchange-rate basis excluding the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales rose 7% due to growth in all regions except Japan, with the largest growth in the fashion jewelry category, and comparable store sales rose 4%. |
• | Net earnings declined 60% to $38 million, or $0.29 per diluted share, compared with $95 million, or $0.73 per diluted share, in last year’s third quarter. However, the Company recorded a pre-tax loss of $94 million, or $61 million and $0.47 per diluted share after-tax, on the extinguishment of debt related to prepaying $400 million of long-term debt during the third quarter. The Company funded the prepayment and related costs by issuing new long-term debt at a lower interest rate and extended maturities. Excluding that loss, net earnings rose 5% to $99 million, or $0.76 per diluted share, due to the sales growth and a higher gross margin. |
• | Worldwide net sales increased 8% to $2.96 billion. On a constant-exchange-rate basis, worldwide net sales increased 9% due to sales growth in all regions and comparable store sales increased 6%. |
• | Net earnings increased 1% to $288 million, or $2.22 per diluted share, from $285 million, or $2.21 per diluted share, last year. Excluding the aforementioned pre-tax loss on extinguishment of debt recorded this year and a pre-tax expense of $9 million, or $0.05 per diluted share after-tax, that was recorded last year for staff and occupancy reductions, net earnings rose 20%. |
• | In the Americas, total sales increased 10% to $459 million in the third quarter and 9% to $1.38 billion in the year-to-date. On a constant-exchange-rate basis, total sales increased 11% and 10% in the third quarter and year-to-date, respectively, due to geographically-broad-based growth across the region, and comparable store sales rose 11% and 9% in the respective periods. |
• | Total Asia-Pacific sales rose 2% to $243 million in the third quarter and 11% to $741 million in the year-to-date. On a constant-exchange-rate basis, total sales increased 2% |
• | Total sales in Japan declined 12% to $113 million in the third quarter (or a 5% decline on a constant-exchange-rate basis), and declined 1% to $406 million in the year-to-date (but rose 5% on a constant-exchange-rate basis). Management attributes the soft demand to weaker economic conditions after a surge in consumer spending before an increase in Japan’s consumption tax on April 1st. Comparable store sales on a constant-exchange-rate basis declined 6% in the quarter and rose 4% in the year-to-date. |
• | In Europe, total sales rose 9% to $114 million in the third quarter and 9% to $336 million in the year-to-date. On a constant-exchange-rate basis, total sales rose 10% and 5% in the quarter and year-to-date, respectively; on that constant-exchange-rate basis, comparable store sales increased 2% in the quarter due to strength in continental Europe, and declined 3% in the year-to-date. |
• | Other sales increased 28% to $30 million in the third quarter and 32% to $101 million in the year-to-date. The increases reflected comparable store sales growth of 35% and 17%, respectively, and retail sales in the first Company-operated TIFFANY & CO. store in Russia, which opened in February. |
• | During the third quarter, Tiffany opened a freestanding store in Tokyo; it has opened six stores in the year-to-date. At October 31, 2014, the Company operated 294 stores (122 in the Americas, 72 in Asia-Pacific, 56 in Japan, 38 in Europe, five in the United Arab Emirates and one in Russia), versus the prior year’s 283 stores (120 in the Americas, 68 in Asia-Pacific, 54 in Japan, 36 in Europe and five in the U.A.E.). |
• | Gross margin (gross profit as a percentage of net sales) rose to 59.5% in the third quarter and 59.2% in the year-to-date, from 57.0% and 56.9% in the respective prior-year periods. The increases in both periods were primarily due to favorable product costs and price increases taken across all product categories and regions, as well as a marked shift in product sales mix toward the higher-margin fashion jewelry category in the third quarter. |
• | SG&A (selling, general and administrative) expenses increased 10% in the third quarter primarily due to increased marketing spending, as well as labor and other store-related costs. SG&A expenses rose 8% in the year-to-date. |
• | The operating margin (earnings from operations as a percentage of net sales) was 17.6% in the third quarter and 19.8% in the year-to-date, compared with 16.9% and 17.3%, respectively, in the prior-year periods. |
• | The effective tax rate was 35.5% in the third quarter, versus 32.3% in the prior year which had benefited from a one-time favorable impact of tax regulations as well as differences in the geographical mix of earnings. The year-to-date effective tax rate was 35.3% versus 33.8% a year ago. |
• | In the third quarter, the Company issued $550 million of long-term debt ($250 million at a 3.8% interest rate maturing in 2024 and $300 million at a 4.9% interest rate maturing in 2044). The proceeds were primarily applied toward prepayment of $400 million of existing long-term debt (with a weighted-average interest rate of 9.8% and maturities ranging from 2015-2019), and the related prepayment costs. As a result, the Company recorded a pre-tax loss on the extinguishment of such debt of $94 million, or $0.47 per diluted share after-tax, in the third quarter. |
• | Cash and cash equivalents and short-term investments were $383 million at October 31, 2014, compared with $521 million a year ago. Total short-term and long-term debt, and as a percentage of stockholders’ equity, were $1.09 billion and 37%, respectively, at October 31, 2014, versus $1.01 billion and 36% a year ago. |
• | Net inventories of $2.6 billion at October 31, 2014, were 6% higher than a year ago, in support of new stores and product introductions. |
• | Capital expenditures were $153 million in the year-to-date, versus $149 million in 2013's year-to-date. |
• | In March 2014, the Company's Board of Directors authorized a new program to repurchase up to $300 million of the Company's common stock over a three-year period which expires in March 2017. The Company repurchased approximately 63,000 shares of its common stock in the third quarter at a total cost of $5.8 million and an average cost of $92.02 per share, and it has repurchased approximately 247,000 shares in the year-to-date at a total cost of $22 million and an average cost of $89.91 per share. At October 31, 2014, $278 million remained authorized for future repurchases. |
1) | Worldwide net sales increasing by a mid-to-high-single-digit percentage (versus the previous high-single-digit forecast). |
2) | Opening 10 Company-operated stores and closing two existing stores: this includes opening four in the Americas, two in Asia-Pacific, two in Japan, and one each in Europe and Russia, while closing one each in the Americas and Asia-Pacific. |
3) | Operating margin increasing due to a higher gross margin. |
4) | Interest and other expenses, net of $60 million. |
5) | An effective income tax rate of 35%. |
6) | Net inventories increasing by a high-single-digit percentage. |
7) | Capital expenditures of $250 million, versus $221 million last year, largely due to incremental investments in information technology systems. |
8) | Free cash flow (cash flow from operating activities less capital expenditures) of at least $400 million when excluding the after-tax debt extinguishment charge noted above. |
Third Quarter 2014 vs. 2013 | Year-to-date 2014 vs. 2013 | ||||||||||
GAAP Reported | Translation Effect | Constant- Exchange- Rate Basis | GAAP Reported | Translation Effect | Constant- Exchange- Rate Basis | ||||||
Net Sales: | |||||||||||
Worldwide | 5% | (2)% | 7% | 8% | (1)% | 9% | |||||
Americas | 10% | (1)% | 11% | 9% | (1)% | 10% | |||||
Asia-Pacific | 2% | —% | 2% | 11% | —% | 11% | |||||
Japan | (12)% | (7)% | (5)% | (1)% | (6)% | 5% | |||||
Europe | 9% | (1)% | 10% | 9% | 4% | 5% | |||||
Other | 28% | (1)% | 29% | 32% | —% | 32% | |||||
Comparable Store Sales: | |||||||||||
Worldwide | 2% | (2)% | 4% | 5% | (1)% | 6% | |||||
Americas | 10% | (1)% | 11% | 8% | (1)% | 9% | |||||
Asia-Pacific | (3)% | —% | (3)% | 4% | (1)% | 5% | |||||
Japan | (13)% | (7)% | (6)% | (2)% | (6)% | 4% | |||||
Europe | —% | (2)% | 2% | 1% | 4% | (3)% | |||||
Other | 35% | —% | 35% | 17% | —% | 17% |
Three Months Ended October 31, 2014 | |||||||
(in thousands, except per share amounts) | $ (after tax) | Diluted EPS | |||||
Net earnings, as reported | $ | 38,268 | $ | 0.29 | |||
Debt extinguishment a | 60,956 | 0.47 | |||||
Net earnings, as adjusted | $ | 99,224 | $ | 0.76 | |||
Nine Months Ended October 31, 2014 | |||||||
(in thousands, except per share amounts) | $ (after tax) | Diluted EPS | |||||
Net earnings, as reported | $ | 287,997 | $ | 2.22 | |||
Debt extinguishment a | 60,956 | 0.47 | |||||
Net earnings, as adjusted | $ | 348,953 | $ | 2.69 |
a | On a pre-tax basis, includes a charge of $93,779,000 within Loss on extinguishment of debt associated with the redemption of $400,000,000 in aggregate principal amount of long-term debt prior to their scheduled maturities which ranged from 2015 to 2019. |
Nine Months Ended October 31, 2013 | |||||||
(in thousands, except per share amounts) | $ (after tax) | Diluted EPS | |||||
Net earnings, as reported | $ | 284,968 | $ | 2.21 | |||
Cost reduction initiatives b | 5,785 | 0.05 | |||||
Net earnings, as adjusted | $ | 290,753 | $ | 2.26 |
b | On a pre-tax basis, includes charges of $9,379,000 within SG&A for the year-to-date 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. |
Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net sales | $ | 959,589 | $ | 911,478 | $ | 2,964,651 | $ | 2,732,846 | |||||||
Cost of sales | 388,718 | 391,997 | 1,209,091 | 1,178,012 | |||||||||||
Gross profit | 570,871 | 519,481 | 1,755,560 | 1,554,834 | |||||||||||
Selling, general and administrative expenses | 402,380 | 365,863 | 1,168,755 | 1,083,172 | |||||||||||
Earnings from operations | 168,491 | 153,618 | 586,805 | 471,662 | |||||||||||
Interest and other expenses, net | 15,375 | 13,922 | 47,802 | 41,328 | |||||||||||
Loss on extinguishment of debt | 93,779 | — | 93,779 | — | |||||||||||
Earnings from operations before income taxes | 59,337 | 139,696 | 445,224 | 430,334 | |||||||||||
Provision for income taxes | 21,069 | 45,086 | 157,227 | 145,366 | |||||||||||
Net earnings | $ | 38,268 | $ | 94,610 | $ | 287,997 | $ | 284,968 | |||||||
Net earnings per share: | |||||||||||||||
Basic | $ | 0.30 | $ | 0.74 | $ | 2.23 | $ | 2.23 | |||||||
Diluted | $ | 0.29 | $ | 0.73 | $ | 2.22 | $ | 2.21 | |||||||
Weighted-average number of common shares: | |||||||||||||||
Basic | 129,352 | 128,004 | 129,179 | 127,716 | |||||||||||
Diluted | 129,978 | 128,974 | 129,894 | 128,729 |
October 31, 2014 | January 31, 2014 | October 31, 2013 | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents and short-term investments | $ | 383,413 | $ | 367,035 | $ | 521,321 | |||||
Accounts receivable, net | 177,290 | 188,814 | 165,862 | ||||||||
Inventories, net | 2,560,369 | 2,326,580 | 2,418,710 | ||||||||
Deferred income taxes | 104,708 | 101,012 | 78,020 | ||||||||
Prepaid expenses and other current assets | 284,597 | 244,947 | 178,589 | ||||||||
Total current assets | 3,510,377 | 3,228,388 | 3,362,502 | ||||||||
Property, plant and equipment, net | 888,103 | 855,095 | 836,062 | ||||||||
Other assets, net | 598,509 | 668,868 | 680,937 | ||||||||
$ | 4,996,989 | $ | 4,752,351 | $ | 4,879,501 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Short-term borrowings | $ | 196,878 | $ | 252,365 | $ | 252,016 | |||||
Accounts payable and accrued liabilities | 344,292 | 342,090 | 309,798 | ||||||||
Income taxes payable | 25,657 | 31,976 | 16,190 | ||||||||
Merchandise and other customer credits | 67,709 | 70,309 | 66,110 | ||||||||
Total current liabilities | 634,536 | 696,740 | 644,114 | ||||||||
Long-term debt | 889,505 | 751,154 | 755,724 | ||||||||
Pension/postretirement benefit obligations | 284,371 | 268,112 | 348,561 | ||||||||
Other long-term liabilities | 208,547 | 220,512 | 223,684 | ||||||||
Deferred gains on sale-leasebacks | 71,340 | 81,865 | 85,464 | ||||||||
Stockholders’ equity | 2,908,690 | 2,733,968 | 2,821,954 | ||||||||
$ | 4,996,989 | $ | 4,752,351 | $ | 4,879,501 |