TIF reported 2Q09 sales of $612m and net earnings from continuing operations of $57m tiffany & co jewelry or $0.46 per diluted share. Expects 2009 net sales to decline about 10% and diluted EPS from continuing operations to be $1.65-1.75.
FINANCIAL DATA
A. Key Data From Call 1. 2Q09 sales = $612m. 2. 2Q09 net earnings from continuing operations = $57m. 3. 2Q09 diluted EPS from continuing operations = $0.46. 4. 2Q09 GM = 55.1%. 5. 1H09 CapEx = $30m. 6. 2Q09-end cash and cash equivalents = $334m. 7. 2Q09 total short-term and long-term debt = $752m. 8. Expects 2009 net sales to decline about 10%. 9. 2009 diluted EPS from continuing operations guidance = $1.65-1.75.
PRESENTATION SUMMARY
S1. 2Q09 Operational Review (M.A.) 1. Results: 1. Sales, $612m and EPS of $0.46. 1. Surpassed expectations. 2. Worldwide sales in dollars declined 16% from last year and by 14% on constant-exchange-rate basis. 1. Improvement from reported 22% and 18% respective declines in 1Q09. 1. Bolsters Co.’s thinking that it can experience further improvement in 2H09 to easier YoverY comparison and therefore achieve full year outlook. 2. Americas: 1. Sales declined 23%. 1. Met expectations. 2. Total US retail sales, declined 26%. 1. Due to roughly equal declines in: 1. Number of transactions. 2. Avg. transaction size. 3. Small improvement in customer conversion rate. 1. First time in quite a while. 4. Comparable US store sales declined 27%, which improved from 34% decline in 1Q09, and compared with 4% decline in 2Q08. 1. Within this, aggregate US branch stores sales were down 26% without any geographically noteworthy areas of weakness or strength. 5. New York flagship store sales declined by 30% for obvious local economic reasons. 1. Comp store sales in entire nine stores in New York region declined 29%. 6. Sales decline in Wall Street store was identical to New York flagship. 7. In 2Q08, branch store comps were down 6%. 1. New York flagship was up 5%, as it was benefiting from strong inflow of European shoppers. 8. Comp trend ranged from 31% decline in May to 25% decline in June rings and 24% decline in July. 1. Last year, US comps have declined 2%, 6% and 5% in those respective months. 9. As seen in recent quarters, price stratification analysis continued to show greatest percentage declines in sales occurring at highest price ranges, that is over $50,000 and smallest declines at more accessible price points. 10. Customer Mix: 1. Sales decline attributed to lower sales to local customers and foreign and domestic tourists. 2. New York flagship store, [some of the] disproportionate effect from lower sales to European visitors this year. 11. New Stores: 1. Opened in past year continue to perform well. 2. Two weeks ago, opened 5,800 sq. ft. store in Roseville Galleria near Sacramento. 3. Scheduled to open a store in 4Q09 in CityCenter complex being build in Las Vegas. 4. Continued to be pleased with customer reactions and operational efficiencies in new format store in Glendale, California. 5. As previously suggested, recently added representative engagement ring assortment that addresses request from many customers. 1. Looking forward to opening similar format stores in Seattle’s University Village next week. 12. e-Commerce and Catalog: 1. Sales, showing encouraging signs. 2. Combined sales declined 8%, due to decline in number of orders, while avg. orders size was unchanged from last year. 1. Better than expectation. 2. Improvement from previous qtr., when sales declined 17%. 3. Catalog circulation declined in qtr., which Co. planned for full year. 1. Instead is relying more on cost-effective marketing benefit from email communication to drive customers to website and stores. 13. Achieved solid performance from stores in: 1. Canada. 2. Mexico. 3. Brazil. 14. Pleased with initial results in new second store in Toronto in Yorkdale section. 15. Conditions are still challenging. 1. Sales trend in 1H09 have been moving in direction Co. planned. 1. Believes picture will brighten further in 2H09 vs. steep sales declines last year. 2. Full year outlook continues to call for a mid-teens percentage sales decline, including high-teens US comp decline, which implies much smaller declines in 2H09. 3. Asia-Pacific: 1. Pleased with improving sales in: 1. Asia-Pacific. 2. Europe. 2. Total sales declined 1%, which followed 9% decline in 1Q09. 3. On constant-exchange-rate basis: 1. Total sales declined 3%. 2. Comp store sales declined 4%. 3. Japan down 11%. 4. Rest of region, up 5%. 4. Note: 1. Results covered now are all on constant-exchange-rate basis. 5. Japan: 1. Total sales declined 13%. 2. Comp store sales declined 11%. 1. Somewhat below expectation. 2. Was on top of 7% comp decline last year. 3. Comps declined throughout qtr. with no meaningful change in monthly pattern nor any meaningful difference in comps within or outside Tokyo. 3. Yen averaged [JPY0.96 to dollar vs. JPY1.06 last year], which generated favorable translation effect on sales. 4. Business continues to be affected by softness in economy and consumer spending. 1. Continues to plan for similar conditions and results for full year. 6. Outside Japan, experienced solid improvements in other Asia-Pacific markets. 1. Total retail sales rose 14% with comp store sales up 5%. 1. This followed 5% comp decline in 1Q09, was on top of 13% comp increase last year and surpassed expectation. 7. Business remain strong in: 1. Australia. 2. China. 8. As qtr. progressed, saw solid improvements in most other countries, including: 1. Hong Kong. 2. Taiwan. 3. Singapore. 9. New Stores: 1. Opened store on Canton Road in Hong Kong. 1. In July alone, it posted second highest volume of eight stores in that market. 2. Next month, will open tenth store in Korea. 3. Plans for later this year includes opening tenth store in China in city of Schengen and fifth store in Australia in Melbourne suburb of Chadstone. 1. All of which should expand upon burgeoning success in these countries. 10. For total Asia-Pacific region, sales outlook now calls for low-single-digit sales decline in dollars. 1. Little better than previously expected. 2. Includes mid-single digit comp decline on constant-exchange-rate basis, with Japan performing below rest of regions. 4. Europe: 1. Total sales increase, 13% in constant currencies. 1. 4% sales decline when translated back in dollars, due to relative strength of dollar vs. European currencies. 2. 13% increase continues to reflect sales from seven new stores opened last year and good underlying demand. 2. Comp store sales rose 5%, which exceeded expectations and was on top of stronger 11% increase last year. 1. Despite difficult economic conditions in UK and Continental Europe, achieved positive comps in London and on Continent with largest percentage increase in Italy. 3. New stores opened last year in UK, Belgium, Germany, Ireland and Spain are generating excellent initial results. 4. Looks forward to entering Netherlands, when Co. opens a store in Amsterdam later this year. 1. Planning to expand presence in UK with opening of boutique in Selfridges in Manchester. 5. Delighted with performance. 1. Now forecasting a low-single-digit comp increase in constant currencies for full year. 1. Bit better than previous expectation for no comp store sales growth. 5. Other Channels: 1. Sales declined 66%. 1. Reflects lower wholesale sales of low quality rough diamonds acquired through sourcing program. 2. Demand in wholesale market was soft, which resulted in lower sales and related profitability. 3. Note: 1. Results for Iridesse business are now shown in discontinued operations. 4. Now expects sales to decline approx. 50% for full year vs. previous expectation of 20% decline. 6. Product Categories: 1. Overall trends with continued relative strength in more accessible price points that was offset by weakness in highest price points. 2. Jewelry: 1. Statement category continues to post steepest percentage decline, bracelets primarily due to decline in pieces sold and not in avg. price. 2. Fashion gold and silver jewelry were best performing category relatively, with sales about equal to last year. 3. Engagement Jewelry: 1. Declined roughly in line with total Co. sales. 2. Main designer jewelry was a bit below Co. avg. 4. Big product launch this year is new KEYS collection of pendants in silver, gold and platinum with diamonds, ranging from [$150-15,000]. 1. It is enjoying stellar start. 5. Recent introduction of new Bezet collection of diamond rings has further expanded engagement jewelry assortment. 6. Despite current challenges in luxury watch market, looking forward to launch of new watch designs this qtr. 7. Summary: 1. Top line performance was respectable in light of difficult environment. 1. Recent trends may bode well for results later in the year. 2. Believes geographical diversification is a significant advantage. 1. Has presence in more than 50 countries, through Co.-operated stores in 21 countries and wholesale distribution to independent retailers in more than 30 additional countries. 1. Offers growth potential for Co. to serve customers in their local markets and when they travel.
S2. 2Q09 Financials (J.F.) 1. Highlights: 1. Despite challenging external conditions, sales in Europe and Asia-Pacific region came in better than expected. 2. Margins and spending came in pretty close to what Co. planned for. 1. Better topline performance helped to put quarterly earnings above expectations. 3. GM, 55.1%. 1. 2.7 points lower than last year and was bit lower than expectation. 1. Largely due to higher product costs, similar to what Co. experienced in 1Q09. 4. While diamond and precious metal costs have declined this year, reversing large increases in prior year, Co. doesn’t get benefit in GM until it actually sells the product. 1. Based on rate of inventory turn, should probably start to see benefit in 1H10. 2. As part of rough diamond sourcing program, wholesale sales and profitability were affected by soft demand in diamond market for such goods, and accordingly, adjusted carrying value for those goods that would be sold in near future. 5. SG&A Expenses: 1. Declined 14%, partly due to lower staffing expenses and reduced variable expenses tied to lower sales levels. 1. Reduced marketing spending this year as Co. previously disclosed. 2. Believes level of advertising and allocation by market is still appropriate to support objective to increase market share. 2. Recovered $4.4m on a loan to Tahera Diamond Corp. that Co. written-off last year. 1. That amount is recorded as a gain in SG&A expenses, and benefited EPS by $0.02. 3. Expects SG&A expenses to decline by high-single digit percentage for full year. 1. Based on 1H09 performance, continues to expect that operating margin from continuing operations will decline in full year from adjusted 17.8% last year that excluded one-time items and that decline will be about evenly divided between lower GM and higher expense ratio. 6. Interest and other expenses, net rose as expected to $12m from $3m last year. 1. Increase primarily resulted from higher interest expenses tied to long-term debt that Co. issued in past few quarters. 2. Continues to expect interest and other expenses net to total about $50m for full year. 7. Effective income tax rate, 26.7% vs. 36.9% last year. 1. Rate was lower than initially planned, due to favorable reserve adjustments tied to conclusion of some tax audits. 2. Lower rate benefited EPS by $0.05. 3. Now expects effective income tax rate of approx. 34% for full year. 8. Net earnings from continuing operations, $57m or $0.46 per diluted share vs. $0.64 last year. 1. Even excluding total of $0.07 per share that resulted from Tahera gain and lower tax rate, earnings from continuing operations were still above what Co. expected due to better sales results. 2. Outlook: 1. Sales and earnings performance leads to increase outlook for net earnings from continuing operations for full year from previous range of $1.50-1.60 per diluted share to new range of $1.65-1.75 per diluted share. 1. Includes forecasted net sales decline of about 10% for year combined with other aforementioned assumptions. 2. Full-year sales forecast assumes no meaningful change in economic conditions from current environment. 1. Has not changed sales and earnings expectations for 2H09. 2. Has no plans for store closings. 3. Balance Sheet: 1. On track to achieve objectives established at start of the year. 2. AR at 07/31/09, 23% lower than last year, due to lower sales volume. 1. Turning at 18 times per year. 3. Net inventories at 07/31/09, just 2% higher than a year-ago. 1. Declined 4% since the start of FY, which is consistent with objective to reduce inventory this year by single-digit percentage. 4. Balance sheet shows high degree of liquidity to support current business and planned expansion. 5. Finished 2Q09 with $334m of cash and cash equivalents vs. $152m a year-ago. 6. Total short-term and long-term debt, $752m vs. $639m last year. 1. Paid off $40m of maturing long-term debt. 7. CapEx, $30m in 1H09 vs. $68m last year, due to fewer store openings and other cost containment. 1. Remains on track to spend about $100m on CapEx for full year. 8. Remains comfortable that Co. can achieve full year forecast to generate approx. $400m of free cash flow. 1. A few weeks ago, disclosed in 8-K filing that Co. entered into new multi-bank credit facility, replacing one that was up for renewal next year. 2. Decided that $400m was an adequate level, down from previous facility’s $450m capacity. 1. Due to strong levels of interest, increased number of participating banks from eight to nine. 4. Summary: 1. Believes Co. is weathering this challenging environment and is positioned well going forward. 2. Expects to report 3Q09 results on 11/25/09.