Tiffany & Co. (TIF)
Q2 2011 Earnings Call Transcript
August 26, 2011 8:30 a.m. ET

Executives

Mark L. Aaron – Vice President, Investor Relations
James N. Fernandez – Executive Vice President and Chief Operating Officer
Patrick F. McGuiness – Senior Vice President and Chief Financial Officer

Presentation

Operator

Good day, everyone and welcome to today''s Tiffany & Company Second Quarter Conference Call. Today''s call is being recorded. At this time, I would like to turn the conference over to Mr. Mark Aaron, Vice President of Investor Relations. Please go ahead, sir.

Mark L. Aaron

Thank you. Thank you everyone for joining us on today''s conference call for our review of Tiffany''s second quarter results and the outlook for the rest of the year. Jim Fernandez, who most of you know and who recently became Tiffany''s Chief Operating Officer is also on the call and we''re pleased to be joined by Pat McGuiness, who was recently appointed Tiffany''s Chief Financial Officer.

Before continuing, please note Tiffany''s Safe Harbor provision that statements made on this call that are not historical facts are forward-looking statements. Actual results might differ materially from the expectations projected in those forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially is set forth in Tiffany''s 2010 annual report on Form 10-K and in other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Now, we can proceed. On our conference call three months ago, we characterized Tiffany''s first quarter results as outstanding due to 20% sales growth and 39% earnings growth, excluding non-recurring items. The second quarter results that we reported today deserve at least a similar superlative description. We achieved strong and better-than-expected sales growth in all geographic regions, with worldwide sales up 30%, that enabled us to gain considerable leverage on expenses and achieve a solid improvement in the operating margins when excluding non-recurring charges and record a 58% increase in net earnings, excluding those non-recurring items.

EPS of $0.86 excluding the non-recurring items was well above our expectation and also above analysts'' expectations. Please refer to today''s news release for further details of those non-recurring items. These results were a further indication of strength in the luxury industry and we again raised our full-year outlook based on the better-than-expected results.

Let''s now review sales by segment. In the Americas, total sales rose 25% due to a higher average price per unit sold as well as unit growth in most product categories. In fact, sales increased in all price strata above $250 with notable strength in sales over $20,000 and $50,000.

On a constant-exchange-rate basis, comparable store sales rose 23% on top of a 5% increase last year. Comps increased by double-digit percentage in all three months. Please note that in the future while we will continue to disclose comps on a quarterly basis for each geographical segment, we will no longer discuss monthly intra-order trends because of our focus on longer-term performance.

Within the Americas, the sales growth was obviously led by our stores in the U.S., but we also had good growth in our stores in Latin America and Canada. Sales in our New York flagship store surged 41% on top of an 8% increase last year with a substantial increase in sales to foreign tourists and the remaining portion of the increase due to higher local customers sales, that 41% increase was sharply higher than the comps we saw in our 8 other New York area stores. Comparable Americas branch store sales increased 19% on top of a 4% increase last year.

Geographically, U.S. sales growth was pretty broad-based, although there was greater strength in the Western half of the U.S., and our six stores in Hawaii and Guam continued to show very strong sales growth due to Japanese tourist spending. In fact, from a customer perspective, roughly half of our U.S. sales increase in the quarter came from higher spending by foreign visitors, increasingly led by Chinese travelers. The benefit from sales to foreign tourists is most meaningful in New York flagship store as well as in certain of our stores in Florida, Las Vegas and California.

During the quarter, we opened our fourth store in the important Chicago market in Northbrook, Illinois and our fourth company-operated store in Canada in Calgary, Alberta. Rounding out the Americas, our e-commerce and catalog sales, which rose 16% on top of a 2% decline last year due to increases both in the number of orders and in the average size per order.

Turning to the Asia-Pacific region, sales increased 55% in the quarter due to roughly equal increases in both the number of units sold and in the average price per units sold. On a constant-exchange-rate basis, total sales rose 45% and comparable store sales rose 41% on top of a 7% comp increase last year.

Sales were strong throughout the quarter and in most countries, with especially strong growth in the Greater China market as well as in Korea. We''re also very pleased with performance from new stores. The store count was unchanged in the quarter, but we recently opened two new stores in Korea this month and had a number of openings scheduled for the next few months and earlier this month, we completed a dramatic renovation and expansion of our store on Collins Street in Melbourne.

Looking at Japan, our business there continued to show improvement that began a month after the tragic earthquake and tsunami in March. Total sales in Japan in yen in the quarter rose 8%, entirely due to 8% comp growth that was on top of a 7% comp decline last year.

When translated into dollars, total sales in Japan rose 21% in the second quarter due to an increase in the average price per unit sold, which benefited from the stronger yen, which averaged 80 to the U.S. dollar in the second quarter versus 90 last year. We were pleased to see that sales growth was geographically broad based throughout Japan and that the sales trends improved as the quarter progressed. The store count held steady during the quarter.