Tiffany & Co. TIF posted the second straight quarter of positive earnings surprise, when it reported third-quarter fiscal 2016 results. This designer and retailer of fine jewelry posted quarterly earnings of 76 cents a share that beat the Zacks Consensus Estimate of 67 cents and increased 9% from 70 cents posted in the year-ago period. However, management kept its fiscal 2016 guidance intact. Shares are up 5% during pre-market trading hours.
Net sales came in at $949.3 million, up 1% from $938.2 million recorded in the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $923 million. Sturdy sales performance in China and Japan offset sluggishness witnessed in the U.S. Comparable-store sales (comps) declined 2%. In constant currencies, comps fell 3%.
By geographic segments, sales in the Americas fell 2% to $417 million, while comps also declined by an equivalent rate. Sales in the Asia-Pacific region rose 4% to $247 million, while comps fell 7%. Sales in Japan jumped 13% to $150 million and comps rose by 20%, and sales in Europe came in at $104 million, down 10%, while comps decreased 14%. Other region sales came in at $31 million, up 18% but comps declined 12%.
In constant currencies, total sales and comps in the Americas both fell by 2%, from the year-ago quarter. Sales in the Asia-Pacific region rose 3%, while comps declined 7%. Sales in Japan fell 4%, while comps climbed 2%. Sales fell 2%, while comps declined 7% in Europe.
Gross margin expanded 80 basis points to 61% during the quarter on account of decline in product input costs, changes in product sales mix and increase in price taken in the past year, partially offset by the impact of higher wholesale sales of diamonds. Operating margin contracted 40 basis points to 16.3%.
During the quarter, Tiffany opened 4 company-operated outlets and shuttered 2 existing locations, all in the Asia-Pacific region. As of Oct 31, 2016, the company operated 313 stores (125 in the Americas, 85 in Asia-Pacific, 55 in Japan, 43 in Europe, and 5 in the U.A.E.). Management now anticipates gross retail square footage growth of 3% via 11 openings, 6 relocations and 6 closings.
Other Financial Details
Tiffany ended the quarter with cash and cash equivalents and short-term investments of $786.7 million, and total short-term and long-term debt of $1,105.2 million, reflecting 38% of shareholders equity. Capital expenditures of $157 million were incurred during the first nine months of fiscal 2016.
During the quarter, the company repurchased approximately 455,000 shares at an average cost of about $68 per share. As of Oct 31, 2016, the company had $313 million remaining under its $500 million buyback program that run through Jan 31, 2019.
Management anticipates capital expenditures of $250 million and expects to generate free cash flow of at least $400 million during fiscal 2016.
Management continues to anticipate earnings per share for fiscal 2016 to decrease by a mid-single-digit percentage from the prior year. Tiffany also reaffirmed that fiscal 2016 worldwide net sales is expected to decrease by a low-single-digit percentage.
Tiffany currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include Best Buy Co., Inc. BBY and The Children's Place, Inc. PLCE both flaunting a Zacks Rank #1 (Strong Buy), and Domino's Pizza, Inc. DPZ carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy delivered an average positive earnings surprise of 25.7% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
The Children's Place delivered an average positive earnings surprise of 36.3% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.
Domino's Pizza delivered an average positive earnings surprise of 1.4% in the trailing four quarters and has a long-term earnings growth rate of 16.8%.
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