Tiffany Earnings: Shining Across the Board

Source: Tiffany

Tiffany (NYSE: TIF  ) reported remarkably strong earnings for the second quarter of the year on Wednesday. Sales performed well across different geographies, and profit margins were on the rise during the quarter. Management also raised guidance for the full year, so the company seems to be clearly firing on all cylinders. Let's go through Tiffany's latest earnings report and try to find out what the future may bring for investors in the iconic jewelry store.

Avid demand
Total sales came in at $993 million, a 7% increase versus the same quarter in the prior year, and better than the $987.9 million forecasted on average by Wall Street analysts according to data compiled by Thomson Reuters. Sales excluding currency fluctuations increased 7% during the quarter, and comparable-store sales grew 3% versus the same quarter in the prior year.

The company opened one store in Aventura, Florida during the quarter. This brings the total store count to 293 stores across the globe as of July 31. This includes 122 stores in the Americas, 72 in Asia-Pacific, 55 in Japan, 38 in Europe, five in the U.A.E. and one in Russia. Tiffany owned 277 global stores at the end of the same quarter last year.

Sales in the Americas region were quite healthy with a 9% annual increase to $484 million, and the Asia-Pacific region was especially strong with a 14% increase in sales to $237 million. On the other hand, sales in Europe were much weaker, increasing only 1% on a constant currency basis.

Although Japan saw a big decline of 13% in revenues during the quarter, this can be attributed to a considerable degree to the fact that many Japanese consumers anticipated their purchases in the previous quarter due to an increase in consumption tax rates in Japan taking effect on April 1. Management said in the press release that demand in Japan was stabilizing after a steep decline for the month of April.

Region Sales  Sales growth Constant currency growth Same-store sales growth
Americas $484 million 9% 10% 8%
Asia-Pacific $237 million 14% 13% 7%
Japan $119 million -13% -10% -15%
Europe $120 million 8% 1% -2%
Other  $33 million 28% 28% 2%
Total $993 million 7% 7% 3%

Source: Tiffany earnings report.

Sparkling profitability
Chairman and CEO Michael J. Kowalski sounded quite pleased with the company's performance in the press release:

"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 jewelry to our newest ATLAS collection, and we are excited about the current debut of our new TIFFANY T jewelry collection."

Gross profit margin came in at 59.9% of sales during the quarter, higher than the gross margin of 57.5% the company delivered in the same quarter last year. In addition to cost efficiencies, Tiffany increased prices across all product categories and geographies during the quarter.

Pricing power is a big plus when evaluating a company's competitive differentiation and its ability to sustain growth in the long term. Retailers exposed to discretionary spending are facing trying industry conditions due to weak demand and a highly competitive pricing environment, and the fact that Tiffany was able to deliver both healthy growth and increased margins under such a scenario speaks wonders about the company.

By comparison, shares of Movado Group (NYSE: MOV  ) fell 7.7% on Tuesday as the company delivered lower than expected sales and earnings for the second quarter. Movado Chairman and CEO, Efraim Grinberg, said in the press release that the company was facing "a more challenging retail climate" during the quarter.

All in all, Tiffany delivered earnings per share of $0.96 during the second quarter, an increase of 15.7% versus the same quarter last year, and considerably above Wall Street analysts' forecast of $0.85 per share based on data compiled by Thomson Reuters.

In a sign of confidence, management also raised its earnings guidance for the year ending on January 31, 2015. Tiffany expects earnings per share to be in the range of $4.2 to $4.3 versus a previous forecast of $4.15 to $4.25.

Key takeaway
Tiffany's performance during the last quarter was nothing short of impressive. Healthy demand, especially in the Americas and Asia-Pacific region, in combination with expanding profit margins bode well when it comes to sustaining earnings growth in the years ahead. .

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