August 13, 2003
True to form for the "little blue box" company, Tiffany (NYSE: TIF ) took investors' breath away this morning, crushing analyst estimates for both revenue and earnings in its fiscal second quarter. The market expressed its awe by cheering the stock 2% higher, capping a 50% increase since March.
Revenue for the quarter, which ended July 31, came in at $442.5 million, up 18% from the year-ago quarter and well ahead of the analyst consensus of $423 million. Growth was strong across all segments: 16% for U.S. retail sales; 14% for international retail sales; and 21% for Internet and catalog sales. Comparable store sales grew a fantastic 8%.
So much for a struggling economy, eh?
Strong sales in turn led to strong earnings -- $0.28 per share, four cents ahead of the analyst estimate and 27% higher than last year. A closer look, however, reveals some help from non-operating factors: a lower tax rate (36.7% vs. 40% last year) and 1% fewer shares due to share buy-backs. Isolating those, Tiffany's pre-tax operating profits were up 15.9% -- still outstanding, but a far cry from 27%.
Of greatest significance on the balance sheet, Tiffany held inventory in-check. Inventory increased 18%, in-line with sales, which means overall inventories are approximately flat. Debt, however, increased dramatically year-over-year due to a decision to purchase the real estate surrounding the company's flagship store in Tokyo. As a result, net debt (debt minus cash) stands at $359.7 million, up from $187.5 million a year ago.
All in all, Tiffany's Q2 performance was impressive. Still, it'll be interesting to see how the company does in the quarters ahead with unemployment on the rise and declining levels of ready cash from mortgage refinancings. Given Tiffany's valuation of 27.5 times expected 2003 earnings, the market seems to have no such concerns.