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Tourist Spending Bolsters Tiffany Sales

Earnings were reduced during the fourth quarter by the firm’s $473 million arbitration award to The Swatch Group Ltd.

Tiffany & Co.’s New York flagship drove up the company’s sales in the Americas as a new mix of tourists showed up to spend.

This story first appeared in the March 24, 2014 issue of WWD.  Subscribe Today.

During the fourth quarter — when earnings were reduced by the firm’s $473 million arbitration award to The Swatch Group Ltd. and even adjusted earnings fell short of analysts’ estimates — the company registered a 7 percent increase in comparable-store sales in the Americas and “sales growth in the New York flagship store [that outpaced] modest growth in brand stores,” said Mark Aaron, vice president of investor relations.

The New York flagship accounted for 8 percent of the company’s worldwide sales last year, or about $322.5 million. Sales to foreign tourists at the flagship gained, accounting for about 45 percent of those revenues, or more than $175 million.

“The increased spending came from Chinese visitors as well as higher spending by European visitors, while a decline in Japanese tourist spending in New York and other markets too very likely reflected the yen’s weakness,” Aaron said.

The yen has contracted about 8.5 percent against the U.S. dollar in the past year.

Aaron added that tourist spending is expected to remain a substantial portion of sales throughout the Americas region “as we generate greater brand awareness in Asia, Europe and elsewhere that also fosters greater spending when customers travel.”

He called comps in other parts of the Americas, including Canada, Mexico and Brazil, “modest” and listed the three highest volume stores outside of the flagship as the units in South Coast Plaza in Costa Mesa, Calif.; Union Square in San Francisco, and on Michigan Avenue in Chicago.

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In the fourth quarter ended Jan. 31, Tiffany logged a net loss of $103.6 million, or 81 cents a diluted share, versus net income of $179.6 million, or $1.40, in the 2012 quarter. Eliminating the effect of the arbitration award, EPS totaled $1.47, 5 cents  below the consensus estimate, and net income was 5.6 percent higher than in the year-ago period.

Revenues were up 5.1 percent to $1.3 billion from $1.24 billion with comps for the period ahead 2 percent and, at constant exchange, up 6 percent. Excluding the effects of currency fluctuation, comps were up in all regions. However, on the basis of local currency, they were down 11 percent in Japan, where adjustments for the weaker yen elevated the result to an 8 percent increase.

Gross margin expanded to 60.5 percent of revenues in the quarter, from 59.1 percent a year ago, and rose to 58.1 percent, from 57 percent, in the full year.

“In both periods, we benefited from price increases we took earlier in the year to catch up with costs after avoiding any meaningful price increases in 2012,” said James Fernandez, chief operating officer and chief financial officer. “In addition, we benefited from diminishing pressure and/or actual reductions in product costs.”

In guidance for 2014, the company projected EPS of between $4.05 and $4.15, below Wall Street’s estimates for a $4.28 result. Like other analysts, Jefferies’ Randal Konik described the guidance as “light, though likely conservative.”