Reason for Report: Flash Update: 1Q16 Earnings Release

Note:More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: Flash Update: 1Q16 Earnings Release

Prev. Ed.:Jun 20, 2013, 1Q13 Earnings Update.

Note: A flash update was done on Jan10, 2016 on Tiffany Holiday Sales

Flash Update (earnings update to follow)

On May 25, 2016, Tiffany posted 1Q16 adjusted quarterly earnings of $0.64 a share – excluding the tax benefit of 5 cents – that fell short of the Zacks Consensus Estimate of $0.68 and plunged 21% year over year. The decline in the bottom line was due to sluggish top-line performance and increased selling, general and administrative expenses, partially offset by higher gross margin.

Net sales came in at $891.3 million, down 7% from $962.4 million recorded in the prior-year quarter, and also below the Zacks Consensus Estimate of $924 million. The decline in net sales was due to lower spending by both local customers and foreign tourists. Comparable-store sales (comps) declined 9%.

In constant currencies too, net sales and comps fell 7% and 9%, respectively. The top line was impacted by soft sales in the Americas, Asia-Pacific and Europe, partially offset by sales growth in Japan.

As a result of these, management provided a muted outlook for fiscal 2016.

By geographic segments, sales in the Americas fell 9% to $403 million, while comps declined by 10%. Sales in the Asia-Pacific region declined 8% to $238 million, and comps were down 15%. Sales in Japan jumped 8% to $131 million and comps rose by 12%, while sales in Europe came in at $97 million, down 9%, while comps decreased 15%. Other region's sales came in at $22 million, down 30%, while comps declined 21%.

In constant currencies, total sales and comps in the Americas fell 8% and 9%, respectively, from the year-ago quarter. Sales in the Asia-Pacific region decreased 5%, while comps declined 12%. Sales in Japan inched up 1%, while comps increased 5%. Sales fell 7%, while comps declined 14% in Europe.

Gross margin expanded 210 basis points to 61.2% during the quarter on the back of favorable product input expenses, shift in sales mix towards higher-margin products and increase in price. Operating margin contracted 260 basis points to 15.1%.

Store Update

During the quarter, Tiffany opened 2 company-operated outlets in Europe, and closed 1 location in Japan. As of Apr 30, 2016, the company operated 308 stores (124 in the Americas, 81 in the Asia-Pacific, 55 in Japan, 43 in Europe, and 5 in the U.A.E.). Management now anticipates gross retail square footage growth of 2% via 11 openings, 6 relocations and 10 closings.

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $789.9 million, and total short-term and long-term debt of $1,102.8 million, reflecting 37% of shareholders equity. Capital expenditures of $46 million were incurred during the quarter.

Tiffany bought back shares worth $78 million in the quarter. As of Apr 30, 2016, the company had $416 million remaining under its $500 million buyback program that runs through Jan 31, 2019.

Management anticipates capital expenditures of $260 million and expects to generate free cash flow of at least $400 million during fiscal 2016.

Guidance

Management anticipates earnings per share for fiscal 2016 to decrease by a mid-single-digit percentage from the prior year. The company had earlier forecast earnings per share for fiscal 2016 to be flat to down in the mid-single-digits. Tiffany now projects second-quarter earnings to decline at a rate equivalent to that of first-quarter fiscal 2016.

Tiffany envisions fiscal 2016 worldwide net sales to decrease by a low-single-digit percentage.

MORE DETAILS WILL COME IN THE IMMIMENT EDITIONS OF ZACKS RD REPORTS ON TIF.

Portfolio Manager Executive Summary[Note: only highlighted material has been changed]

Tiffany Co. (TIF) is a specialty retailer selling jewelry, watches, crystal, china, silverware, and accessories. The Company sells through retail stores, direct marketing (Internet), and limited business-to-business transactions.

Analysts’ Opinions: Almost 66.7% of the analysts in the Digest group covering the stock were neutral, 27.8% were positive, while 5.6% were negative. Target prices provided by the analysts range from a low of $53.00 to a high of $90.00. The average is $78.27, implying a return of 0.6%.

The outlook of the firms on TIF is dealt with in the following paragraphs:

Neutral or equivalent (66.7%; 12/18 firms): Despite the challenging retail environment, the firms believe that over the longer term, Tiffany is well positioned to support solid sales and earnings growth by leveraging capital investments made over the past several years in distribution, manufacturing, and diamond sourcing processes. However, the firms believe that soft sales trends in the Americas, effects of a depreciated Japanese yen on results, and sluggishness witnessing in the silver business are the near term headwinds.

Positive or equivalent (27.8%; 5/18firms): These brokerage firms think the stock is attractive for the long-term investors given the Company’s organic growth, impressive product quality, distribution and improved earnings visibility.These firmsbelieve TIF has one of the strongest brand equities in retail worldwide with long-term global growth potential, including the opportunity to grow its store base significantly in emerging markets. Further, the firms believe that consolidating jewelry retail environment and innovative product offering will improve the financials of Tiffany.

Negative or equivalent (5.6%; 1/18 firms): The firm believes that higher input costs and adverse sales mix are likely to remain short-term deterrent for the stock.

Additional factors to be taken into consideration before investing in the stock are as follows:

The Company faces market risks due to fluctuations in foreign currency, which may adversely affectits financial results.

The supply and price of rough diamonds are controlled by a single entity, the Diamond Trading Corporation (DTC). Higher commodity costs for precious metals may hurt results if the Company is unable to pass along such costs to consumers.

June 20, 2013

Overview [Note: only highlighted material has been changed]

Founded in 1837 and based in New York, Tiffany & Company (TIF), through its subsidiaries, is engaged in the designing, manufacturing and retailing activities of fine jewelry, which includes gemstone jewelry and gemstone band rings, diamond rings and wedding bands, gold or platinum jewelry, as well as sterling silver jewelry. Its merchandising offerings include timepieces and clocks; sterling silverware; crystal, glass, china, and other tableware; custom engraved stationery; writing instruments; and fashion accessories. Furthermore, Tiffany offers fragrance products under brands such as ‘Tiffany’, Pure Tiffany’ and ‘Tiffany for Men’. The Company sells its products through catalog and wholesale operations, retail stores, direct marketing, Internet and business-to-business direct selling transactions.

As of June 20, 2013, the Company operated 275 stores (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and 5 in the U.A.E.).

Tiffany primarily reports through the following segments –

• Americas: Includes sales in stores in the United States, Mexico, Canada and Brazil. Tiffany also distributes a selection of its products through its websites and catalogs of selected merchandise to its list of customers and to mailing lists rented from third parties.

• Asia-Pacific: Consists of sales in China, Korea, Hong Kong, Taiwan, Australia, Singapore, Macau and Malaysia.

• Japan: Consists of sales in Japan.

• Europe: Includes sales in stores in the United Kingdom, Germany, Italy, France, Austria, Switzerland, Belgium, Spain and Ireland.
• Other: The Other segment consists primarily of wholesale offers of diamonds, includes sales derived from businesses operated under trademarks or trade names other than Tiffany & Company and income received from third-party licensing agreements.

The firms identified the following factors for evaluating investment merits of TIF:

• New store expansion, comparable-store sales growth, and new businesses, such as Iridesse, are expected to be growth drivers, going forward.
• Tiffany remains committed to attain long-term objectives of at least a 15% earnings growth and a 10% to 12% sales increase annually. Moreover, the Company’s long-term objective is to attain ROA of at least 10% and ROE of at least 15%.
• The Company intends to expand its distribution network by adding stores in both new and existing markets. On the international side, the Company is now concentrating in expanding business in Middle East, Russia, Brazil and India.
• New products, marketing, and customer service initiatives, and new sales assortments supported by a strong ad campaign are expected to improve results, going forward.

• Increased competition from other brands creates pricing power troubles for TIF.
• Absence of appropriate merchandising assortments may negatively affect the performance of the Company.
• Fluctuations in foreign currency could adversely impact financial results.
• A weak economic environment will likely lead to deterioration in consumer spending, which could negatively impact financial results.

More information is available on the Company’s website: Its fiscal year ends on January 31.

June 20, 2013

Long-Term Growth [Note: only highlighted material has been changed]

Tiffany’s brand strength remains the key factor for its long-term growth, according to most of the firms. They believe that Tiffany’s brand is better than ever and remain encouraged by the improving trend in Japan and continued strength in other international markets, particularly in other parts of Asia, Australia, Mexico, and Brazil. In addition, TIF continues to add variety to product offerings at all price points, with fresh additions to the lineup procured indigenously, as well as from its other designers. This facilitates access to editorial coverage in the press and stimulates demand among new and existing loyal customers.

The firms believe that Tiffany possesses one of the strongest brand identities in the retail market and will likely continue to raise consumer awareness through its commitment to increase the pace of store openings and broaden its product assortments.

Moreover, the firms believe Tiffany has numerous opportunities to gain market share globally including comp-store sales growth, square footage growth, as well as the expectations for consolidation by many independent specialty jewelers given the difficult environment. Despite the challenging retail environment, the firms believe that, over the longer term, Tiffany is well positioned to support solid sales and earnings growth through leveraging capital investments made over the past several years in distribution, manufacturing, and diamond sourcing processes.

The firms believe Tiffany has drivers in place to continue to achieve its long-term targets. The Company has three main long-term financial targets including:

• Achieving at least a 15% return on average equity and at least a 10% return on average assets.

• Maintaining a strong balance sheet to pursue growth strategies.
• Using excess cash for share repurchase and dividend increases.
• Tiffany remains committed to attain long-term objectives of at least a 15% earnings growth and a 10% to 12% sales increase annually.
• Tiffany’s long-term target also includes worldwide comparable-store sales growth of 4% to 6% annually on the back of 4% to 6% growth from the U.S., 1% to 3% from Japan and 6% to 8% internationally.

In the Asia/Pacific region, the firms view China as one of Tiffany’s most attractive growth opportunities. Tiffany plans to double its footprint in China over the next few years.

June 20, 2013

Target Price/Valuation [Note: only highlighted material has been changed]

Potential risks to the price target include but are not limited to Company-specific problems, such as the maintenance of supply agreements, the continuation of supply and demand in the wholesale market for high-quality cut diamonds, expansion risk, and economic risks, including declines in consumer traffic and/or spending, currency risk, and stock market risk.

Recent Events[Note: only highlighted material has been changed]

On May 28, 2013, Tiffany & Company posted better-than-expected 1Q13 results due to surge in demand in the Asia-Pacific region. The quarterly earnings of $0.70 a share surpassed the Zacks Consensus Estimate of $0.53, and rose 9.4% from $0.64 in the prior-year quarter. Tiffany posted net sales of $895.5 million during the quarter, up 9% from the prior-year quarter, on the heels of healthy performance of stores in the Americas, Asia-Pacific and Europe regions and due to new collection launches. Total revenue also outdid the Zacks Consensus Estimate of $862 million. In constant currencies, net sales jumped 13%, whereas comparable-store sales climbed 8%.

On Mar 22, 2013, Tiffany posted better-than-expected 4Q12 results. The quarterly earnings of $1.40 per share beat the Zacks Consensus Estimate of $1.37, and rose marginally by 0.7% from $1.39 earned in the prior-year quarter. Tiffany posted net sales of $1,235.8 million during the quarter, up 4% from the prior-year quarter but fell short of the Zacks Consensus Estimate of $1,255 million.

Revenue[Note: only highlighted material has been changed]

According to the Zacks Digest Model, Tiffany posted net sales of $895.3 million during 1Q13, up 9.3% from the prior-year quarter, on the heels of healthy performance of stores in the Americas, Asia-Pacific and Europe regions and due to new `collection launches. In constant currencies, net sales jumped 13%, whereas comparable-store sales climbed 8%. Tiffany in the early part of 2013 raised the prices of all product categories, which was implemented in all regions. This led to sales momentum. The Company had kept the price unchanged during 2012.

Provided below is a summary of revenue as complied by Zacks Digest:

By geographic segment, sales in the Americas grew 6% to $408 million, while comps increased 3% during the quarter; sales in the Asia-Pacific region climbed 15% to $223 million, whereas comps increased 9%; sales in Japan inched up 2% to $145 million and comps grew 3%; and sales in Europe jumped 6% to $93 million and comps increased 4%. Other sales nearly surged threefold to $27 million.

In constant currencies, sales in the Americas rose 6%, whereas comps increased 3% during the quarter; sales in the Asia-Pacific region grew 14%, whereas comps rose 9%; sales in Japan advanced 20%, while comps grew 21%; and sales in Europe climbed 8%, whereas comparable-store sales climbed 6%.

Sales by region are as follows:

Outlook

Tiffany now expects total net sales growth in mid-single digit for fiscal 2013. In constant currencies, total net sales are projected to increase in the high-single-digit. For the second too sales are expected to increase in mid-single digit. The firms believe that soft sales trends in the Americas, effects of a depreciated Japanese yen on results, and sluggishness witnessing in the silver business are the near term headwinds. Management remains committed to achieve long-term objectives of 10% to 12% sales increase.

Please refer to the separately published TIF spreadsheet for additional details and updated forecasts.

Margins[Note: only highlighted material has been changed]

Provided below is a summary of margins as compiled by Zacks Research Digest:

According to the Zacks Digest Model, gross profit for 1Q13 increased 7.3% y-o-y to $503.1 million, however, gross margin contracted 110 basis points to 56.2% due to unfavorable sales mix.

According to the Zacks Digest Model, SG&A (selling, general and administrative) expenses increased 5.7% y-o-y to $353 million during the quarter.

As per the Zacks Digest Model, Operating incomeincreased 10.7% y-o-y to $149.4 million, whereas operating marginexpanded 20 bps to 16.7% during the reported quarter.

Outlook

Management anticipates operating margin to remain flat year-over-year due to marginal decline in gross margin on account of sales mix inclined towards higher priced items offset by SG&A leverage. Interest and other expenses are projected to be $58 million and tax rate expected to be 35%.

The Zacks Digest Model projects cost of sales to increase at a faster rate than revenue in FY13 (7% versus 6.3%) and in FY15 (15.6% versus 14.8%) but at a slower rate in FY14 (5.9% versus 7%).

G&A expenses will likely grow at a slower rate than revenue in FY13 (5% versus 6.3%), in FY14 (6.1% versus 7%) and in FY15 (13.3% versus 14.8%).

The Zacks Digest Model forecasts an operating income of $747.4 million for FY13, $829.2 million for FY14 and $968.4 million for FY15, representing y-o-y growth of 7.2% in FY13, 10.9% in FY14 and 16.8% in FY15.

Please refer to the separately published TIF spreadsheet for additional details and updated forecasts.

Earnings per Share [Note: only highlighted material has been changed]

As per the Zacks Digest Model, Tiffany posted net earnings of $88.7 million or $0.70 per share in 1Q13 compared with net earnings of $81.5 million or $0.64 per share in 1Q12, reflecting surge in demand in the Asia-Pacific region.

Provided below is a summary of earnings per share as compiled by Zacks Research Digest:

Outlook

Tiffany continues to project fiscal 2013 earnings between $3.43 and $3.53 per share, reflecting year-over-year growth of 6% to 9%. However, management expects second quarter earnings in line with theprior-year quarter. The Company’s long-term objective is to attain ROA of at least 10% and ROE of at least 15%. It remains committed to achieve long-term objectives of at least 15% earnings growth.

The Zacks Digest Model forecasts net income of $448.6 million for FY13, $502.5 million for FY14 and $596.5 million for FY15, with y-o-y growth of 7.8%, 12% and 18.7% in FY13, FY14 and FY15, respectively.