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Tiffany & Co. (NYSE:TIF)
Q1 2018 Earnings Conference Call
May. 23, 2018 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

[Operator instructions] Good day, everyone, and welcome to this Tiffany & Co. first-quarter 2018 conference call. Today's call is being recorded. Participating on today's call is Alessandro Bogliolo, chief executive officer; Mr. Mark Erceg, Tiffany's chief financial officer; Mr. Mark Aaron, vice president of investor relations. At this time, I would like to turn the conference over to Mr. Mark Aaron. Please go ahead, sir.

Mark Aaron -- Vice President, Investor Relations

Thank you. Well, thank you, everyone, for joining us today. Our format on this call will consist of remarks first from Alessandro, and then Mark Erceg and I will follow with brief reviews of the first quarter and outlook, and then we'll answer some of your questions. I hope you've all had a chance to review the news release we issued earlier today.

Before continuing, please note that statements made on this call that are not historical facts are forward-looking statements. Actual results might differ materially from the planned, assumed, or expected results expressed in or implied by these forward-looking statements. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances except as required by applicable law or regulation. Additional information concerning factors, risks, and uncertainties that could cause actual results to differ materially as well as the required reconciliations of the non-GAAP measures referenced in this presentation to their comparable GAAP measures is set forth in Tiffany's Form 10-Q filed earlier today with the Securities and Exchange Commission as well as the news release filed today under cover Form 8-K.

Those files can be found on Tiffany's investor website, www.tiffany.com, by selecting Financial Information in the left-hand column. I believe we can now proceed, so I am pleased to turn the call over to Alessandro.

Alessandro Bogliolo -- Chief Executive Officer

Thanks, Mark. I will begin saying the obvious that, of course, we are pleased with our first-quarter results, and we hope investors are pleased as well. Importantly, during the first quarter, sales that we attribute to local customers were positive across all regions. I believe this is a good reflection of the structural strength, appeal, and potential of Tiffany & Co., and perhaps it signals some early lead benefits coming from some of the initiatives that we have begun pursuing.

Frankly, our global performance was stronger than we anticipated, as it also benefited from demand that we attribute to Chinese and other foreign tourists in all regions, except Europe, which we believe was more currency-related. However, despite the strength in the first quarter, with net earnings up more than 50%, we think it would be unreasonable to extrapolate those results for the rest of the year. Nevertheless, we are confident in the initiatives that we are pursuing. We have previously communicated our six key strategic priorities, and I can assure you that our entire organization is focused with great urgency on the related action plans.

We have also said, and I will reiterate now, that we are increasing our strategic investment spending in 2018 beginning with the second quarter in the areas of technology, marketing communications, visual merchandising, digital and store presentations, which we believe are necessary to sustain healthy sales growth over the longer term. I would like to highlight three meaningful examples of the process we have made on some of our strategic priorities. Our first priority is to amplify and evolve brand message through marketing and public relations activities. Our Believe in Love marketing campaign communicates that Tiffany believes in love in all its wonderful diversity.

We believe this evolved message resonates with customers and that our investing in this campaign contributed to the 11% growth in engagement jewelry sales during the quarter. People will always have reasons to celebrate new and existing love and commitment, and Tiffany & Co. is moving forward, along with the new generations, as the expert in modern love. In another strategic priority, delivering a seamless omnichannel customer experience, we are investing in our own website to optimize our capabilities.

Beyond our own website, two weeks ago, we were pleased to begin offering a curated assortment of our jewelry on Farfetch in more than 40 countries, which is in addition to our existing relationship with NET-A-PORTER. We believe this will bring Tiffany & Co. closer to additional customers where highly fashion conscious can shop online in and beyond the 13 countries, where we operate our own Tiffany e-commerce site. I'm sure you'll recall another strategic priority, cultivating a more efficient operating model.

On one side, I would like to be clear. It is our strong view that the 320 basis points of improvement in the operating margin in the first quarter should not be extrapolated to the rest of the year, since as we have planned and previously communicated, we are stepping up our strategic investment spending now and for the rest of the year. Nevertheless, we are committed to increasing efficiency. And in this respect, I'm pleased that our jewelry design and innovation workshop started operating last month.

Located in New York City, near our corporate offices, this 17,000-square-foot workshop puts under the same roof our expert artisan model makers, along with jewelry designers and process engineers, fostering a start-up-like kind of spirit. Benefits of some teamwork are expected to result in higher efficiency, embedded in all phases of product making, although the primary purpose of this new way of working remains to enable constant innovation and distinctive creativity. Earlier this month, our chief artistic officer, Reed Krakoff, unveiled the creation of the very talented things he directs, Paper Flowers, our new jewelry collection of distinctive designs in platinum and diamonds. Simultaneously, we launched our new campaign "Believe in Dreams," which is all about how getting in touch with the beauty and wonder of Tiffany takes you to a place where dreams come true.

It is now appearing across various communications medium. I've been delighted to meet and consistently hear support from a number of analysts and long-term investors in the past months, and I look forward to meeting many more of you. I've had -- we have had a good start to the year, but we have many things to accomplish. I see us at the beginning of a long and exciting journey.

Our No. 1 long-term objective is to achieve solid growth in comparable sales on a constant-exchange-rate basis in order to drive higher operating margins and earnings over the long term. I believe we have the necessary ingredients to ultimately achieve that. And now I will turn the call over to Mark Aaron.

Mark Aaron -- Vice President, Investor Relations

Thanks, Alessandro. We certainly should be pleased with the first-quarter results and are excited about that journey ahead of us. The worldwide sales growth of 15% on a GAAP basis and 11% on a constant-exchange-rate basis was higher than expected and reflected growth in all regions. We were also pleased with increased jewelry unit volume in all regions, and we were especially delighted with comparable sales growth of 10% on a GAAP basis and 7% on a constant-exchange-rate basis, which reflected broad-based sales growth in stores as well as in e-commerce sales, which we now include in the overall comp-sales calculation.

Briefly looking at sales by region. We saw broad-based sales growth in the Americas, which we attributed to higher spending by local customers as well as by foreign tourists. We believe that the weaker U.S. dollar has played a role in a steadily improving trend in spending, attributed to foreign tourists in the U.S.

in recent quarters. Sales growth in Asia Pacific exceeded 20%, which included growth in Greater China and of note, a continued strong rebound in Hong Kong, pretty solid growth in most other markets and continued growth in the wholesale sales in Korea, which is related to duty-free sales. We were very pleased with sales growth in Japan, which we attributed both to local customers, who we believe represent most of the purchasing in Japan, and also to the increase in spending by foreign tourists. In Europe, an increase of 13% in total sales primarily reflected favorable foreign currency translation from the stronger euro and pound as well as some lift from new stores.

However, we saw a continued softness in Europe on a constant-exchange-rate basis, which we attributed to lower foreign tourists spending. Comps in Europe were also negatively affected to a lesser extent by what we attribute to cannibalization on existing stores from two major stores we opened in 2017 in Milan and Moscow that are not yet in the comp base. Lastly, a decrease in the other segment primarily results from lower wholesale sales of rough diamonds, which as you've seen in the past, can be volatile from quarter to quarter. From a merchandising perspective, we were pleased and encouraged to achieve solid sales growth in all jewelry categories.

Sales rose 18% in our jewelry collections category, including our icons, such as TIFFANY T, HardWear, Keys, and Return to Tiffany. Sales rose 11% in the designer jewelry category, which consists of the designs of Elsa Peretti, Paloma Picasso, and Jean Schlumberger. And we were especially encouraged with an 11% sales increase in the engagement jewelry category consisting of diamond rings and wedding bands, which came from growth in all regions. In addition, we're pleased with sales growth in watches, highlighted by the new Tiffany Metro Watch as well as early results in the new home and accessories collection and our new signature fragrance.

So all in all, there was a lot to like in both regional and product category results in the quarter. And with that, let me now turn the call over to Mark Erceg.

Mark Erceg -- Chief Financial Officer

Thanks, Mark. I echo Alex's and Mark's comments about how pleased we are to begin 2018 on a strong note. We believe that the strategies we have been pursuing, the investments we have been making and the operational discipline we have been instilling are contributing to the broad-based sales increase we saw on both a geographic and product-line basis. The 15% sales growth we posted during the first quarter created fixed-cost leverage, which helped expand gross margins and lower SG&A costs as a percentage of sales.

Gross margin also expanded due to a reduction in wholesale diamond sales. In addition, we benefited from the U.S. Tax Cuts and Jobs Act and recorded a small benefit from the reduction in our transition tax obligation, which resulted in a Q1 effective tax rate of 25.3%. Adding it all up, 15% sales growth, combined with three points of improvement in the operating margin and a lower effective tax rate, resulted in a 54% increase in diluted earnings per share from $0.74 per share last year to $1.14 per share this year.

Cash flow from operations was also very strong. We managed working capital effectively and grew inventory to raise well below sales while maintaining high levels of product availability in our stores. Finally, we spent about $40 million to repurchase more than 400,000 shares of our common stock and spent $37 million on capital expenditures, which allowed us to finish the quarter with $1.2 billion of cash, cash-equivalents, and short-term investments. Beyond looking at the financial results, we are pleased with the performance of our supply chain as it relates to both internal manufacturing and rough-diamond sourcing.

For example, our diamond sourcing capabilities have been specifically built over the past two decades to provide us with large quantities of high quality, responsibly sourced diamonds at a competitive cost. We are also pleased with our progress in upgrading our IT platforms where we continue to make steady gains across a range of important multi-year initiatives. And while we're managing expenses well, our global procurement team continues to identify incremental areas of cost reduction and greater efficiencies to be gained throughout the company. Now, having said all of that, this is just one quarter, and we're all very mindful that there are still a lot of exciting work to do and a lot of additional investments we will be making in order to properly support our six key strategic priorities as we seek to generate sustainable long-term growth in sales, margins, and earnings.

So in terms of full-year sales and earnings guidance, we are now projecting worldwide net sales growing by a high single-digit percentage versus the previous forecast of mid-single-digit growth, and we have elected to increase our full-year EPS guidance range from $4.25 to $4.45 per share to $4.50 to $4.70 per share. Regarding cash, we are forecasting approximately $700 million of cash flow from operations and at least $400 million of free cash flow for the year. Now we believe this guidance properly accounts for several things. First, our better-than-expected first-quarter results have been incorporated, and our sales projections for the rest of the year have been revised upwards to some extent.

Second, our forecast now assumes comparable sales grow by a mid- to high single-digit percentage, with varying degrees of growth in all regions. Third, we continue to anticipate an increase in gross margin for the full year behind some leverage on fixed cost and a continued flow-through of lower diamond costs. Fourth, our forecast still assumes a significant increase in SG&A expenses over the balance of the year in excess of sales growth, tied to the higher strategic investment spending we've targeted for technology, marketing communications, visual merchandising, digital and store presentation. Fifth, we continue to believe our effective income tax rate will be in the high 20% range for the year.

And finally, we were pleased to announce this morning that our board of directors approved a $1 billion share repurchase program. Under this new program, we expect to enter into a transaction during the second quarter to buy $250 million of stock through an accelerated share-repurchase program subject to market conditions. So please note that our new full-year EPS guidance range of $4.50 to $4.70 per share assumes the repurchase of approximately $400 million of stock for the whole year. That wraps up my formal remarks, so I'll turn the call back over to Mark.

Mark Aaron -- Vice President, Investor Relations

Thanks, Alessandro and Mark. [Operator instructions] Lynette, let's take the first question.

Questions and Answers:

Operator

Thank you. [Operator instructions] We'll take our first question from Michael Binetti from Credit Suisse.

Michael Binetti -- Credit Suisse -- Analyst

Hey, guys, congrats on a great quarter. Thanks for taking our questions here. So I just want to get your thinking on a little bit of help on the cadence on the comps, high single in the first quarter. The guidance for the rest of the year to increase mid- to high single and plus a slowdown the rest of the year, but obviously, you've got product in the stores that you sound a lot more excited about just at the end of the quarter there.

Obviously, the compares get more difficult. But is there anything on seasonality you can point to rolling off? Or are we just being conservative here as we get in some new product areas?

Mark Erceg -- Chief Financial Officer

I think it's partly what you said, in a sense that you look back to the prior year, we started Q1 last year and comparable sales were down 2% and it was flat, flat and up 2% in the fourth quarter. So we are dialing up against sequential improvement in the base period.

Michael Binetti -- Credit Suisse -- Analyst

Thanks a lot.

Operator

We'll hear next from Erwan Rambourg from HSBC.

Erwan Rambourg -- HSBC -- Analyst

Yeah. Hi, good morning, gentlemen, and congratulations. I understand I have to limit it to one question. So I was just wondering if you could talk a bit about the initiative on Paper Flowers.

My understanding is this is initially a U.S.-centric launch, and then you'll be rolling out to other geographies later in the year, more in the back-to-school season, if I can say. So if you can talk a bit about what you expect in terms of contribution from that range and maybe explain why you're hitting the U.S. first and then rolling out second. Is it a production constraint? Or is this a way to maybe develop a bit of scarcity impact on that range?

Alessandro Bogliolo -- Chief Executive Officer

Sure. Thank you for your question. First of all, we are very proud of the launch of Paper Flowers. It's a new collection that ranges from high jewelry all the way to fine jewelry.

And it's a major launch since several years. And we -- personally, I believe that Reed did an amazing work with his team in order to define and come out with a collection where, yes, it's floral, but it's based on a very modern concept of a flower that is -- has been deconstructed and reconstructed with amazing skills but also very modern design. So of course, for us, this is an important moment for the brand and for the year. We started to drive the launch in the U.S., but we are rolling it out in the rest of the regions before the summer and also after the summer.

The first reaction now, we cannot comment on sales because we just started selling it in part of our network, but the reaction of the press and people to our launch has been very enthusiastic. I have to say that the team did an amazing job in terms of the launch because it has been very sophisticated, elegant, as you would expect from Tiffany, but at the same time, it was very innovative. And you will remember, our first priority that is to amplify in a bold brand message. I think the launch of Paper Flowers really represented that with many different components in terms of PR launch, of celebrities.

So we are very, very confident about it. And we think that this way of rolling it out across the world in the next few months will be very effective and very good for our image, first of all, but also for our sales.

Erwan Rambourg -- HSBC -- Analyst

Thank you. Best of luck. Thanks.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

Omar Saad from Evercore ISI, your line is open.

Omar Saad -- Evercore ISI -- Analyst

Thanks for taking my question. Great quarter. Can you talk a little bit about the breadth -- the acceleration you saw? Obviously, it was pretty broad-based across categories, regions, etc. Maybe you could talk about your sense of how much of it is a lot of the new digital marketing strategies, social media strategies.

We're really seeing the brand start to come alive in some of these new areas versus just kind of macro trends and the underlying macro health driving the business. Because it seems a little bit more company-specific, what's happening at Tiffany right now. Thanks.

Alessandro Bogliolo -- Chief Executive Officer

Well, thank you, Omar, for the question. Well, I think we posted a very good first quarter, but to be honest, also, best competitors have posted good results. And when it comes to our performance, I think that in general, there is -- I mean, there is a lot of things that we are putting together. For sure, one of those is also the digital side, but it's not that we have, in the first quarter, a radically different approach toward digital strategy.

It has been a matter of leveraging digital more and more effectively during the quarter in order to put Tiffany in the conversation. Let me make a couple of examples. One result that I'm very proud of is the 11% growth in the engagement business. And there, we have this campaign, Believe in Love, that was, of course, also in print, but most of the investment was actually in digital, and it proved to be effective.

For the launch of Paper Flowers, of course, it was a physical launch in our flagship store in Fifth Avenue, but we have an amplification on digital. So this is becoming really a normal, a new normal for Tiffany, to leverage digital in all ways. But I have to say, there was not something exceptional during the first quarter.

Omar Saad -- Evercore ISI -- Analyst

Understood. Thanks, gentleman.

Alessandro Bogliolo -- Chief Executive Officer

Thank you, Omar.

Operator

We'll move on to Bob Drbul from Guggenheim.

Robert Drbul -- Guggenheim Securities -- Analyst

Hi. Good morning. I guess I would just like to focus on the engagement category. I think you had some success in the holiday season, and that continued in the first quarter.

Can you just talk about the initiatives there, the efforts there and really, if you think you've turned the corner in this important category? Thanks.

Alessandro Bogliolo -- Chief Executive Officer

Thank you, Bob. Well, I was asked several times about the engagement category in the past three months, and I keep on repeating that this category is really at the core of Tiffany, and we are very proud of it. And honestly, I don't believe that there is any structural sociological reason for which this category shouldn't grow as the other ones. I know in the past that we have the soft results, as you mentioned.

And more recently, things are moving forward but positively. So specifically to your question on what happened, well, product-wise, it didn't happen much. But what was important, I think, were two factors. One that is tangible that is the new Believe in Love campaign, we invested a reasonable amount of media behind that campaign.

It was not exceptional. It was just in line with our normal practice, but the campaign has a message, a new message of love in a more modern way that has really resonated with customers. So this was one factor, and I'm very proud of that because it really positions Tiffany as the expert on modern love, bringing us -- making us relevant for new generations, for millennials. But there is another factor that I would like to underline.

What we have done has been to work a lot with our colleagues, with our sales associates. There has been a very extensive training program, really focused on the engagement jewelry, especially on the diamonds, on the sourcing of the diamonds, on the quality of Tiffany diamonds. And this has been, in my opinion, a very important factor also of the results of our sales. This would be the two most important factors, I would say.

Robert Drbul -- Guggenheim Securities -- Analyst

Great. Thank you very much.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

We'll hear next from Simeon Siegel from Nomura Instinet.

Simeon Siegel -- Nomura Instinet -- Analyst

Thanks. Hi, guys. Good morning and congrats on a strong start to the year. Alessandro, I guess it's still early, but are you seeing any change in the customer profile? Are the new lines bringing in new customers? Are you grabbing greater share of existing customers' wallet, maybe some version of both? And could you just parse out the comp composition this quarter between transactions and ticket? Thanks.

Alessandro Bogliolo -- Chief Executive Officer

Thank you. I totally agree with you, it's still too early. Especially to see customer trends, I think a quarter or two is far too short. As far as it can be meaningful, we have seen a positive trend in customers' sales in this quarter, both in existing customers as well as in new customers, which is very encouraging, but again, I think it's still early.

We are just at the beginning of implementing our actions according to our strategic priorities. So it's a good start, but there is still a lot of work to do.

Mark Aaron -- Vice President, Investor Relations

Yes. And clearly, what we're most excited about is that jewelry unit volume was up in the quarter across all regions. So yes, there's certainly some variations in mix from one region to another, higher or lower in some regions. But the most important thing for us is an increase in jewelry unit volume, and that was really broad-based in the quarter.

Simeon Siegel -- Nomura Instinet -- Analyst

Great. Thanks a lot, guys, best luck for the year.

Operator

Lorraine Hutchinson from Bank of America Merrill Lynch, your line is open.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning. I wanted to follow-up on the personalization tool that you launched back in the fall. Was that a driver of your engagement sales? And are you seeing good uptick on that option?

Alessandro Bogliolo -- Chief Executive Officer

Thank you, Lorraine, for the question. I see you are very careful about what we do in the market. That was an important initiative. I would say, very important in terms of engagement with customers.

If I have to say, sales-wise, it was not really a big thing. I wouldn't say it's material. But in terms of engagement in the -- on the customers and also bringing attention to this core business of Tiffany, in that respect, it was very important, yes.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

We'll hear next from David Schick from Consumer Edge Research.

David Schick -- Consumer Edge Research -- Analyst

Hi. Good morning, and congratulations. If I piece together what Alessandro has said and what Mark Erceg has said -- Alessandro, you've said before, you've observed there are multiple years of opportunity to sort of earn back the business that you should be doing, and Mark, you made it sound like we're starting to see the results of this investment that you've been making, you start to be able to show that a little bit. Is it fair to say that those two can combine and, realizing there's cadence to investments that still have to happen, but that the operating margin and the sales line has a multi-year flight path given the investments and the sales opportunity?

Mark Erceg -- Chief Financial Officer

Well, I think that's really what we've been focused on. I mean, I think we have a clear set of strategic priorities. We have a clear list of investment areas that we believe will allow us to sustain sales and earnings growth over a multi-year horizon. We believe that this brand is really beginning to resonate.

We believe we're becoming more relevant. We believe we've been inserting our self into the conversation. And yes, we believe that we have the operational discipline to also continue to extract efficiencies throughout the entire lead organizations such that we expect operating margins to continue to expand over time. So we're feeling that we're at the beginning of a very exciting multi-year journey.

And the short answer is yes. We feel good about the trajectory the business is on. But it's still early days, and we still got a lot of work to do.

David Schick -- Consumer Edge Research -- Analyst

Thank you.

Operator

Moving next to Brian Nagel from Oppenheimer.

Brian Nagel -- Oppenheimer & Company -- Analyst

Hi, good morning. Great quarter. Congratulations. So my question, I guess, it's mostly for -- probably for Mark Erceg.

This one, on the gross margin, you discussed it a bit in your prepared comments, but nice -- it's a nice improvement here in Q1, Mark, sequential improvement in prior quarters. How should we think about the sustainability of these type of gross margin increases, particularly as we're starting to see some evidence now of commodity costs ticking higher? Thanks.

Mark Erceg -- Chief Financial Officer

Yes. That's great question. And we have been in a multi-year cycle where metal input costs have been coming down, rough diamond prices have been coming down. We did still see, in the quarter, some help from lower rough diamond acquisition prices.

But we do think that that may be tailing off to some extent. Now that said, we've talked a lot in the past about how we need to be able to achieve, call it, SG&A and fixed cost leverage on a lower rate of top-line sales growth at a time when we're also trying to accelerate our top-line sales growth. So we believe, because of the investments we're making through our supply chain network, the work that we're doing on the procurement side, even the jewelry design and innovation workshop, where we're going to be doing things to obviously generate a lot more innovation, it's also going to allow us to do fast prototyping, issue cost analysis and rapid costing tools. The detailed spec packages that will come out of that, we're going to be exploring alternative materials and fabrication techniques, mainly from last year for us to work with, with some of the benefiting work we've integrated.

So we are confident that we're going to continue to expand gross margin and operating margin in the years ahead if the investments we have targeted continue to resonate with our consumers.

Brian Nagel -- Oppenheimer & Company -- Analyst

Thank you.

Operator

Hearing from Ed Yruma from KeyBanc Capital Markets. Please go ahead.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hi. Good morning, and thanks for taking my question. Obviously, very, very powerful results. Can you talk a little bit about maybe changes you're making in the selling process to make the brand more approachable? I know you identified training and engagement, but are there other that you think are helping improve conversion rate?

Alessandro Bogliolo -- Chief Executive Officer

Thank you, Ed, for your questions. Yes, definitely. One of our priorities to have -- to deliver an exciting omnichannel customer experience. And we said and we are doing it that from this quarter, we are increasing most of our investments in store presentations, visual merchandising.

Now, all this is really meant in order to change the experience, to improve the experience in our stores. Just to be more factual, if you go to any of our stores in North America, you will find, of course, Paper Flowers, that have just been launched. And looking at the visual merchandising of this jewelry line is different from the usual visual merchandising. It's more elevated and fresher, and this is a first sign of what we are planning to do in the stores also physically in order to make the stores more engaging and more fun and more modern.

This is on the physical side. Then, of course, there is the human side, which is the most important, that refers to training, as you mentioned.

Mark Aaron -- Vice President, Investor Relations

Ed, as we've said, clearly, a big objective for us is to increase the frequency of customer visits and the conversion rate. So all of these things that Alessandro is talking about, hopefully, will get the customer to come in a little bit more frequently to see what's inside of a Tiffany store and what's on our website.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Great. Thanks, guys.

Operator

We'll move next to Paul Lejuez from Citigroup.

Paul Lejuez -- Citi -- Analyst

Hey, thanks, guys. I'm curious, with the money that you're spending this year, will any of that be tied to another major collection launch later in the year? And even just higher level, Alessandro, how are you thinking about the frequency and the size of new collections that you introduced?

Alessandro Bogliolo -- Chief Executive Officer

Thank you, Paul. We are definitely committed to renewing our product offering. And for me, this means that when we look at our jewelry, that is the bulk of our business, it's actually an ecosystem made of many different parts. And newness should flow every year in every single part of this jewelry ecosystem of Tiffany.

Now for sure, the big launch in this area is Paper Flowers because that is a big statement on a floral motif, which is more in the fine and high jewelry, which is an area where we have not been launching any new line since a long time. But simultaneously, we are planning, and we are already doing it, to introduce newness in different lines that are existing. Let me give you an example. For example, in Keys, that is a very successful and iconic line of Tiffany.

We are adding new models called Modern Keys this year. And we will do -- we will keep on doing this in other parts of our assortment throughout the year. So yes, definitely, stay tuned. Of course, Paper Flowers is the big launch of this year.

Paul Lejuez -- Citi -- Analyst

And should we expect something [Inaudible] on the lower price range, I mean, the under $500 category, anything big in that price strata?

Alessandro Bogliolo -- Chief Executive Officer

As said, we will introduce new items in all categories and also price ranges. But again, the big launch totally is that new aesthetic line is Paper Flowers. But in existing lines, in the different price levels, we will and we are introducing some newness but of course, not to the extent of an entire new line with a dedicated campaign like Paper Flowers.

Mark Aaron -- Vice President, Investor Relations

Yes. I mean, there's certainly newness under $500 in silver jewelry and the Return to Tiffany and some other collections at those price points. So it's a combination of introducing totally new collections but also doing extensions to the iconic existing collections.

Alessandro Bogliolo -- Chief Executive Officer

And especially this is -- yes. And especially, this is an approach not only for this year, but it's an approach going forward really strategically. And this is why we made it a strategic priority. Thank you.

Paul Lejuez -- Citi -- Analyst

Thank you.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

We'll move next to Laurent Vasilescu from Macquarie.

Laurent Vasilescu -- Macquarie Group -- Analyst

Good morning, and thanks for taking my question. I wanted to follow up on the tourism into the U.S. I think a major U.S. retailer called out last week that tourism was up 10% for their start of the year.

Would you have any directional thoughts on your tourism growth for the quarter in the U.S.? And any thoughts if this resurgence in tourism is sustainable for the near term?

Mark Aaron -- Vice President, Investor Relations

Well, we're not going to quantify the numbers exactly how much foreign tourist spending was up in the U.S. in the quarter, but it has definitely turned around. Last year, quarter to quarter, it was getting less bad and less bad as the dollar was weakening, and it finally was sort of flattish in the fourth quarter. And now we've got the wind at our backs, and at least for the moment, it's actually increasing.

So -- but again, our primary focus is on the increases we're getting with local customers. Foreign tourist spending will always bounce around based on currency movements, but we're most focused on what's going on with the local customer.

Laurent Vasilescu -- Macquarie Group -- Analyst

Great. Best of luck.

Operator

Oliver Chen from Cowen and Company. Your line is open.

Oliver Chen -- Cowen & Company -- Analyst

Hi, Alessandro. We are seeing some real structural shifts in global luxury and the approach to luxury from newer customers. What are your thoughts about demarketization? And how you approach that with innovation? And also, the long-term path for rethinking the store? Our take is that the stores have lots of opportunity to enhance engagement, and that may require some combination of physical and digital and experiential investment. I would love your thoughts along those lines.

Thank you.

Alessandro Bogliolo -- Chief Executive Officer

Sure. Thank you, Oliver. Actually, we would need a lot of time to answer properly this question, and I hope we will have the opportunity maybe in person one day. But I think Tiffany is extremely well-placed as a brand in order to leverage the change in attitude and mores that there is in the luxury market.

A characteristic of Tiffany is of being extremely sophisticated yet inclusive. In Tiffany, you find very refined products, starting from few hundred dollars all the way to several millions, but all with the same inclusive attitude and especially an informal kind of approach. Informal, by our sales professionals, but especially informal as a way of wearing the product. Now, this is really in the [Inaudible] of today, today's consumers, and this is why I am very confident about the future of this brand because the DNA of this brand, the origin where it comes from, the way the assortment is articulated is perfectly set in order to respond to today's customers.

On top of this, of course, we have to nurture this legacy that we receive. And for this, we are working very hard in order to continue this story. And this is why we say we are at the beginning of a journey, but a very exciting journey.

Oliver Chen -- Cowen & Company -- Analyst

And do you have any thoughts on the stores? And what you want to do? You've made some really nice near-term changes in terms of highlighting newness. But as you think about customer engagement and experiential and also rethinking cabinets, I -- we also think customers aren't necessarily shopping by collection as much as they are by looking for solutions. So what are your thoughts about being customer-centric in regards to what you're seeing? You have a lot of experience and knowledge about how this is moving from your past as well.

Alessandro Bogliolo -- Chief Executive Officer

Absolutely. One of our priorities is that of enhance the omnichannel experience. So for me, it refers to the physical space of the stores as well as the digital side of it, the integration of the two of them and that we have teams working on all these subjects. But of course, this is not something that will be delivered this quarter or next quarter.

It's more of a longer-term process on which we are working very, very quickly.

Oliver Chen -- Cowen & Company -- Analyst

Great quarter. Thank you. Best regards.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

Brian Tunick from RBC. Your line is open

Bilun Boyer -- RBC -- Analyst

Hi. This is Bilun on for Brian. Thanks for taking our question. I wanted to go back to the calendar of innovation here and the pace of product launches.

I know you mentioned that Paper Flowers is the key product launch for this year. But I guess going forward, what is the ideal calendar, in your view? How do you plan to balance the new introductions and the additions to the existing collections to more iconic collections and the potential cannibalization here?

Alessandro Bogliolo -- Chief Executive Officer

Thank you for your question. What we believe going forward is that we should have newness throughout the year and in the different parts of our assortment. This doesn't mean that we will have two or three launches of new aesthetic lines every year. This is absolutely not the way we are going.

We are proud of having Paper Flowers now as a launch, but this is a landmark kind of launch for us. Newness is not only entirely new designs. Newness is also introducing versions, colors, stones that are new to existing collections, and we will have a constant flow of this. And don't underestimate the business impact of these additions because even if they don't get as much visibility of an entire new line, actually, in terms of dollars, often, when they are successful, they can generate a very big accretive additional business, and we are very pleased with it.

Bilun Boyer -- RBC -- Analyst

Thank you.

Alessandro Bogliolo -- Chief Executive Officer

Thank you.

Operator

We'll hear from Randy Koenig from Jefferies.

Randy Koenig -- Jefferies -- Analyst

Hey, thanks a lot. When you see the broad-based strength across all the categories, it tells me actually that the marketing has been super important, and Reed's impact has been extremely important here. I guess, my question is how do you think about evolving the marketing going forward? And how do you kind of make it different or the same in the U.S. versus Europe and Asia? Because clearly, it's a signal that more marketing is better.

And Reed's -- the way he's doing the marketing is totally unique, and it's really bringing the brand and its aesthetic out into the marketplace again. So just curious on how you're really kind of thinking about marketing going over the next one to two or three years. And then just lastly, Mark, you talked a lot about newness on this call. How do you think about managing SKU productivity to maximize margin output and inventory turnover going forward?

Alessandro Bogliolo -- Chief Executive Officer

OK, Randy. So about marketing, we invested in the first quarter a -- I mean, our normal investment in marketing. So I think more than the quantitative side of it has been the fact that these marketing dollars were spent in a message that is more modern, fresh and aligned with the Tiffany DNA. I don't want to take anything out of marketing.

I believe a lot on it, and we are going to spend even more in the future. But what I think is very meaningful for me, these -- the results of this first quarter is that -- are two things. First of all, that the brand is obviously healthy. Because such results across regions, across product categories, really clear the doubt if anybody had it, that Tiffany brand is not strong or is not healthy.

So first of all, it's about the strength of the brand. And the second one, I really have to say, it's about the amazing quality and enthusiasm of the people. I have various expectations for my people. I have to say that they have exceeded my expectations because the work that they have been doing has been amazing, and the level of optimism and of positive, competitive spirit that there is in the company that I can feel every day is really amazing.

And this, in an organization, is very important because strategies are important. But somebody said that culture eats strategy for breakfast, and what we are building here is really a culture to win.

Mark Erceg -- Chief Financial Officer

And then just real quickly on your question about SKU productivity. It's certainly something that we're very, very mindful of. I mean, this is one of the benefits of being vertically integrated and really controlling our own destiny as it relates to our product and our product offerings and how that's presented to the consumer. We have a very dedicated and talented merchandising team, and we're now working with, what I'll call, creative discipline and that we're working on multi-year innovation horizon platforms, which gives us line of sight into the items that will be coming forward, and we'll make better decisions about what should be in the stores and how those should be assorted.

So we've got a lot of additional tools at this point that are helping us think through and make sure that we manage our SKU productivity well.

Randy Koenig -- Jefferies -- Analyst

Thank you.

Mark Aaron -- Vice President, Investor Relations

OK. Thank you, everyone. In the interest of time, we've been taking questions for about 30 minutes. I think we will now wrap up this call.

Please feel free to call me with any other questions. And please note that we expect to report second-quarter results on August 28, with the conference call at 8:30 a.m. Eastern Time. Thanks for listening, and have a wonderful day.

Operator

[Operator signoff]

Duration: 50 minutes

Call Participants:

Mark Aaron -- Vice President, Investor Relations

Alessandro Bogliolo -- Chief Executive Officer

Mark Erceg -- Chief Financial Officer

Michael Binetti -- Credit Suisse -- Analyst

Erwan Rambourg -- HSBC -- Analyst

Omar Saad -- Evercore ISI -- Analyst

Robert Drbul -- Guggenheim Securities -- Analyst

Simeon Siegel -- Nomura Instinet -- Analyst

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

David Schick -- Consumer Edge Research -- Analyst

Brian Nagel -- Oppenheimer & Company -- Analyst

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Paul Lejuez -- Citi -- Analyst

Laurent Vasilescu -- Macquarie Group -- Analyst

Oliver Chen -- Cowen & Company -- Analyst

Bilun Boyer -- RBC -- Analyst

Randy Koenig -- Jefferies -- Analyst

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