Tiffany European store sales dip 5% in H1 results

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Worldwide net sales rise 7% and 10% in Q2 and H1 respectively.

Tiffany & Co. has released its H1 and Q2 financial results for the months ended July 31 2014, citing a 7% increase in worldwide net sales and a 16% boost in net earnings in Q2, despite a “weak performance” in the UK and most of Continental Europe overall. 

Q2 Results
In the second quarter, Tiffany recorded a worldwide net sales increase of 7% to $993 million (£599m), with comparable store sales rising 3%. This was largely due to continued growth in the Americas and Asia-Pacific regions.

Additionally, net earnings rose 16% to $124 million (£74.8m), or $0.96 per diluted share, compared with $107 million (£64.5m), or $0.83 per diluted share, in Q2 2013.

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H1 Results
In the six months ended July 31 2014, Tiffany secured a 10% boost in worldwide net sales, reaching $2 billion (£1.2bn) overall. Comparable store sales also rose by 7%.

Net earnings in the first half of the year increased 31% to $250 million (£150.8m), or $1.92 per diluted share, compared to $190 million (£114m) or $1.48 per share, in the first half of 2013.

By Region
Net sales showed significant variation by region, with the UK and Continental Europe garnering disappointing results for the company.

In the Americas, total sales rose 9% in Q2 to $484 million (£291m) and increased 8% in the first half of 2014 to $922 million (£598m). Comparable store sales were also up 8% in both periods.

Asia Pacific experienced a total sales increase of 14% to $237 million (£143m) in Q2, jumping 15% in the first half to $498 million (£300m). Strong growth in Greater China and Australia are thought to have boosted these figures considerably.

However, in Japan, total sales declined 13% reflecting a “softening of customer demand after exceptionally strong 20% total sales growth in the first quarter when customers had accelerated their purchases in anticipation of an increase in Japan’s consumption tax on April 1”.

In Europe, total sales increased 8% in both the second quarter and first half to $120 million (£72m) and $221 million (£133m), respectively. On a constant-exchange-rate basis, total sales increased 1% in the quarter and 2% in the half; comparable store sales declined 8% and 5%, respectively, reflecting weak performance in the U.K. and most of continental Europe.

Other sales rose 28% in the second quarter to $33 million and 34% in the first half to $71 million. The increases were primarily due to retail sales growth reflecting the opening of the first company-operated Tiffany & Co. store in Russia, as well as 2% and 10% comparable store sales growth in the United Arab Emirates.

Other Financial Highlights
Gross margin – or the gross profit as a percentage of net sales – increased 59.9% in the second quarter and 59.1% in the first half of 2014. These figures reflect favourable product costs and price increases taken across all categories and regions.

SG&A (selling, general and administrative) expenses rose 9% in Q2, primarily due to increases in the cost of labour and other store related expenses, as well as a higher marketing spend. For H1 SG&A expenses jumped 7% overall.

Net inventories were $2.5 billion at July 31 2014, 9% higher than a year ago in support of new product introductions and anticipated sales growth.

Capital expenditures were $91 million in the first half, compared with $87 million a year ago. Additionally, in March 2014, the company’s Board of Directors authorised a new program to repurchase up to $300 million of common stock over a three-year period which expires in March 2017.

Tiffany & Co. spent approximately $9 million in the second quarter to repurchase 102,000 shares of its common stock at an average cost of $90.98 per share, and it spent approximately $16 million in the first half to repurchase 184,000 shares at an average cost of $89.18 per share. At July 31, 2014, $284 million remained authorised for future repurchases.

Outlook for H2 2014
For the fiscal year ending January 31 2015, Tiffany & Co. management is expecting net earnings in the range of $4.20 to $4.30 per diluted share, versus its most recently published forecast of $4.15.

This is based on the assumption that worldwide net sales will increase by a high-single-digit percentage, with 10 new company-operated stores also expected to boost numbers.

Tiffany & Co. chairman and chief executive officer Michael J. Kowalski, said: "These healthy second quarter results reflected solid sales growth in our stores, particularly in the Americas and Asia-Pacific regions. In addition, an improved gross margin was an important contributor to the earnings growth.

“We were also pleased with solid performance across most product categories, ranging from the success of perennial classics in fine, statement and engagement jewellery to our newest ATLAS collection, and we are excited about the current debut of our new TIFFANY T jewellery collection."

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