Bloomberg News

Tiffany Profit Forecast Trails Estimates as Spending Rises

March 21, 2014

Tiffany

Selling, general and administrative expenses rose 7 percent during the quarter on higher store-related and labor costs, Tiffany said. Photographer: Neilson Barnard/Getty Images

Tiffany & Co. (TIF:US), the world’s second-largest luxury jewelry retailer, forecast annual profit that fell short of estimates as the company increases spending on its information-technology systems.

While the expenditures will weigh on profit, the New York-based company said it expects worldwide sales to grow in the high single digits in percentage terms this year. Capital spending will jump 22 percent to $270 million as the 176-year-old company upgrades its technology.

“Long term, this is a good move for the company,” said Ed Yruma, an analyst with Keybanc Capital Markets Inc. in New York who recommends buying the stock. “There also is a degree of conservatism baked in the guidance, which at this state we appreciate.”

The capital spending will be focused on global customer relationship management and more advanced order and inventory controls, Chief Financial Officer Jim Fernandez said on a conference call with investors and analysts. Tiffany also revamped its website last year.

Full-year earnings per share will rise to $4.05 to $4.15, the company said in a statement. Analysts had projected $4.27, the average of 27 estimates (TIF:US) compiled by Bloomberg. While investors may not be happy about the shortfall, the reasons cited by Tiffany appear to be sound, according to David Schick, an analyst with Stifel Financial Corp. in Baltimore.

‘Make Sense’

“The factors likely make sense and don’t affect the longer term,” Schick, who recommends buying the shares, said today in a note to clients.

Shares of Tiffany, led by Chief Executive Officer Michael Kowalski, fell 0.5 percent to $90.73 at the close in New York. The stock has declined 2.2 percent this year.

Tiffany’s legal battle with Swatch Group AG also has crimped profit. The company recorded a net pretax charge of $473 million last quarter related to an arbitration award to Swatch, which had claimed a breach of contract at their joint venture. That contributed to a fourth-quarter net loss of $103.6 million, or 81 cents a share, compared with net income of $179.6 million, or $1.40, a year earlier.

Swatch Agreement

Tiffany and Swatch had forged an alliance to develop and sell watches under the Tiffany brand and share the profit. The standoff began in 2011 after Swatch alleged that Tiffany blocked development of the partnership. Tiffany said it had honored its obligations.

Excluding the Swatch expenses, Tiffany’s profit was $1.47 a share last quarter. The average of 22 analysts’ estimates (TIF:US) compiled by Bloomberg was $1.52 a share.

Quarterly selling, general and administrative expenses rose 7.3 percent to $472.7 million, boosted by higher store-related spending and labor costs. Sales climbed 5.1 percent to $1.3 billion, matching analysts’ projections. Sales at stores open at least a year increased 6 percent.

Higher prices accounted for the sales increase and the jeweler plans to raise prices again, in the single digits in percentage terms, in the current quarter, executives said on the call. Products with midrange and high prices sold the best, they said. The company cited its Atlas, Ziegfeld and Harmony collections.

In the Americas, comparable-store sales gained 7 percent. Sales were stronger at the Manhattan flagship than the branch stores, and driven by tourists, particularly visitors from China, Mark Aaron, a spokesman, said on the call.

In the Asia-Pacific region, total sales advanced 8 percent to $275 million. They climbed 10 percent to $161 million in Europe. Japanese sales, meanwhile, dropped 12 percent to $169 million because of the weaker yen.

Tiffany’s board also authorized the repurchase of $300 million in shares. The previous buyback (TIF:US) program expired in January.

Tiffany ranks second to Cie. Financiere Richemont SA in global sales of luxury jewelry.

To contact the reporter on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net James Callan


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Companies Mentioned

  • TIF
    (Tiffany & Co)
    • $99.28 USD
    • -0.24
    • -0.24%
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