NEW YORK--(BUSINESS WIRE)--Tiffany & Co. (NYSE: TIF) today reported its financial results for the three months and nine months ended October 31, 2020. In the third quarter, worldwide net sales returned to the billion dollar level and represented a decrease of 1% as compared to the prior year; on a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars (see “Non-GAAP Measures”), worldwide net sales for the three months were 2% below the prior year. Net earnings increased 52% for the third quarter as compared to prior year (73% improvement when excluding certain costs related to the Merger (as defined below); see “Non-GAAP Measures”) reflecting higher gross and operating margins and a lower effective income tax rate. In the year-to-date, worldwide net sales decreased 25% as compared to the same period in the prior year and, on a constant-exchange-rate basis (see “Non-GAAP Measures”), decreased 24% in the nine months as compared to the prior year. Net earnings turned positive in the year-to-date.

Alessandro Bogliolo, Chief Executive Officer, said, “We had a strong third quarter both in sales on a relative basis and terrific results in profitability on an absolute basis, which speaks volumes about the enduring strength of the Tiffany brand and gives us confidence as we enter the important holiday season. I want to commend all our invaluable managers and extraordinary employees for the excellent results achieved in a very, very difficult environment.

“We believe that the results we released today demonstrate that our strong continuing execution against the strategic priorities we set three years ago positions us to achieve sustainable sales, margin and earnings growth for this legendary brand. Further to continued management focus and investment in that important market, sales in Mainland China continued to grow dramatically in the third quarter, increasing by over 70%, with comparable sales nearly doubling in that period as compared to the prior year. In addition, and consistent with our focus, e-commerce sales finished the third quarter up 92% globally as compared to the prior year, performing positively in all markets. As a result, total e-commerce sales represent 12% of total net sales in the year-to-date, as compared to 6% for each of the last three fiscal years. Finally, we saw an increase in another important metric – average unit retail price – in the third quarter in response to our strategic initiatives designed to focus consumers on our finest products, both online and in our stores. Absolutely noteworthy is the performance of T1, our newest gold and gold with diamonds collection, which was received particularly well in all markets and channels.”

Mr. Bogliolo closed by saying, “We look forward to surprising and delighting our consumers during the holiday season and the successful completion of the merger transaction with LVMH in early 2021.”

Mark Erceg, Chief Financial Officer added, “We believe that expanding operating margins by nearly 500 basis points in the third quarter as compared to the prior year and posting exceptionally strong net earnings growth against an extremely difficult macroeconomic backdrop demonstrates the strength and durability of the Tiffany brand, as well as the considerable skill and dedication of Tiffany’s management, craftspeople and sales professionals. By being very thoughtful and deliberate about cost management and capex spending, we were able to continue funding important strategic growth investments, like the renovation of our Fifth Avenue flagship store in New York City, finish the third quarter with ample liquidity from our cash-on-hand and unused borrowing capacity and, once again, remain in full compliance with our leverage ratio financial maintenance covenant and our fixed charge coverage ratio test for debt incurrence.”

In the third quarter:

• Worldwide net sales of $1.0 billion decreased by 1% and comparable sales increased by 3% from the prior year; on a constant-exchange-rate basis, net sales decreased 2% and comparable sales increased 1% from the prior year.

• Net earnings of $119 million were 52% higher than the prior year’s $78 million, and net earnings per diluted share were $0.98 versus $0.65 in the prior year. Excluding certain costs recorded in the period related to the pending acquisition of the Company (the “Merger”) by LVMH Moët Hennessy - Louis Vuitton SE (“LVMH”), pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of October 28, 2020 (the “Merger Agreement”), by and among the Company, LVMH, Breakfast Holdings Acquisition Corp. and Breakfast Acquisition Corp., third quarter net earnings of $136 million, or $1.11 per diluted share, were 73% higher than the prior year (see “Non-GAAP Measures”).

In the year-to-date:

• Worldwide net sales declined 25% to $2.3 billion and comparable sales declined 22% from the prior year; on a constant-exchange-rate basis, net sales declined 24% from the prior year and comparable sales declined 21%.

• Net earnings of $86 million were 75% lower than the prior year’s $340 million, and net earnings per diluted share were $0.71 versus $2.80 in the prior year. Excluding certain costs recorded in the period related to the Merger, as well as certain other items, year-to-date net earnings of $110 million, or $0.90 per diluted share, were 68% lower than the prior year (see “Non-GAAP Measures” for further details on these costs).

Net sales by region were as follows:

• In the Americas, total sales decreased 16% in the third quarter and 36% in the year-to-date, to $354 million and $826 million, respectively; comparable sales decreased 15% in the third quarter and 35% in the year-to-date. Sales decreased across most of the region in the third quarter, which management primarily attributed to the decline in foreign tourism in the region related to the effects of COVID-19. The year-to-date decline also reflected the store closures resulting from COVID-19 across the region that began in mid-March and continued into June, with most stores in the region reopened in mid-June. On a constant-exchange-rate basis, total sales declined 15% in the third quarter and 35% in the year-to-date, and comparable sales declined 14% in the third quarter and 34% in the year-to-date.

• In Asia-Pacific, total sales grew by 30% in the third quarter and decreased 7% in the year-to-date to $382 million and $854 million, respectively, which included comparable sales increases of 40% in the third quarter and 3% in the year-to-date. In the third quarter, total sales results reflected strong retail sales growth in Mainland China and Korea, partially offset by mixed performance across other markets in the region. In the year-to-date, total sales reflected strong e-commerce sales growth, as well as retail sales growth in Mainland China and Korea, which was more than offset by softness across the other markets in the region, which management attributed to the effects of COVID-19 and the resulting store closures across the region beginning with Mainland China in February and persisting for varying durations through early June, as well as a decline in wholesale travel retail sales. On a constant-exchange-rate basis, total sales increased 26% in the third quarter and decreased 6% year-to-date, while comparable sales increased 36% in the third quarter and 3% in the year-to-date as compared to the prior year.

• In Japan, total sales decreased 8% in the third quarter and 25% in the year-to-date to $156 million and $353 million, respectively; comparable sales decreased 4% and 23% for those same periods, respectively. Management attributed the decrease in the third quarter to a decline in foreign tourism in the region, as well as strong growth in the prior year due to high consumer demand prior to the consumption tax increase which occurred on October 1, 2019. Management attributed the decline in total sales in the year-to-date to the effects of COVID-19, including the resulting store closures across the region, which primarily began in early April 2020 and continued through early June, and a decline in tourist traffic beginning early in the first quarter of fiscal 2020. On a constant-exchange-rate basis, total sales decreased 9% in the third quarter and 26% in the year-to-date, and comparable sales decreased 5% and 24%, respectively.

• In Europe, total sales declined 6% in the third quarter and 24% in the year-to-date to $104 million and $249 million, respectively, and comparable sales declined 6% in the third quarter and 25% in the year-to-date. Management attributed the decline in sales in the third quarter across most of the region to a decline in foreign tourism related to the continuing effects of COVID-19. In the year-to-date, sales decreased across the region, which management also attributed to the effects of COVID-19 and the resulting store closures across the region, which began in mid-March and continued into June, with the vast majority of these stores reopened by mid-June. On a constant-exchange-rate basis, total sales decreased 9% in the third quarter and 24% in the year-to-date; comparable sales decreased 9% and 25%, respectively.

• Other net sales decreased 30% to $12 million in the third quarter and 59% to $28 million in the year-to-date due to decreases in sales within the Emerging Markets region in both periods and a decrease in wholesale sales of diamonds in the year-to-date.

• Tiffany has opened two Company-operated stores in the year-to-date and closed eight. At October 31, 2020, the Company operated 320 stores (122 in the Americas, 87 in Asia-Pacific, 59 in Japan, 47 in Europe, and five in the UAE). As of October 31, 2020, substantially all of the Company’s retail stores worldwide were fully or partially opened, in accordance with applicable guidelines established by local governments. In response to new restrictions and requirements implemented in late October 2020 and November 2020 in certain European countries as a result of increased COVID-19 infection rates, the Company has temporarily closed certain of its retail stores in that region. As of November 20, 2020, approximately 60% of the Company’s retail stores in Europe were temporarily closed in accordance with the applicable guidelines established by local governments. Substantially all of the Company’s stores in its other regions remained fully or partially open as of that date.

• Sales for jewelry categories in the third quarter and year-to-date were as follows: Jewelry Collections increased 7% and decreased 21%, respectively; Engagement Jewelry decreased 6% and 28%, respectively; and Designer Jewelry decreased 6% and 23%, respectively.

Other highlights:

• Gross margin (gross profit as a percentage of net sales) of 63.8% in the third quarter increased as compared to 61.7%, and gross margin of 61.2% in the year-to-date decreased as compared to 62.1%, in each case as compared to the respective prior year period. The increase in the third quarter was largely due to a change in sales mix to higher margin products. The decrease in the year-to-date was largely due to (i) sales deleverage on fixed costs resulting from the effects of COVID-19 on net sales, (ii) certain overhead costs not capitalized in the period resulting from certain manufacturing locations being closed or operating at reduced capacity during the period due to COVID-19 and (iii) an increase in inventory reserves, partially offset by a change in sales mix to higher margin products in the third quarter. Additionally, the year-to-date included the impact of a $12 million charge that was recorded in the three months ended April 30, 2020 to fully reserve the asset related to an expected insurance recovery in respect of the bankruptcy filing of a metal refiner to which the Company entrusted precious scrap metal.

• Selling, general and administrative (“SG&A”) expenses decreased $29 million, or 6%, in the third quarter and $144 million, or 10%, in the year-to-date. SG&A included $18 million and $42 million, respectively, in costs related to the Merger; in the year-to-date, SG&A also included a $12 million charitable contribution to The Tiffany & Co. Foundation (see “Non-GAAP Measures” for further details). In the third quarter, the increase in SG&A from costs related to the Merger was more than offset by decreased marketing spending and continued prudent management of the Company’s operating expenses, which included the reduction or elimination of certain non-essential spending. In the year-to-date, the increase in SG&A from costs related to the Merger and the charitable contribution to The Tiffany & Co. Foundation were more than offset by decreased marketing spending (although marketing expense as percentage of net sales in the year-to-date was approximately in line with the Company’s historical percentage), decreased labor and incentive compensation costs as well as decreased store occupancy expenses. Excluding the Merger-related costs in both periods and the charitable contribution in the year-to-date noted above, SG&A expenses decreased $47 million, or 9%, in the third quarter and decreased $198 million, or 14%, in the year-to-date (see “Non-GAAP Measures”). In the year-to-date, SG&A expenses as a percentage of net sales increased due to sales deleverage on operating expenses resulting from the effects of COVID-19 on net sales. Changes in foreign currency exchange rates did not have a meaningful effect on SG&A expenses in the third quarter and year-to-date as compared with the prior year.

• Earnings from operations as a percentage of net sales (“operating margin”) was 16.4% in the third quarter and 5.2% in the year-to-date, compared with 11.7% and 15.1% in the respective prior year periods. Excluding the Merger-related costs in both periods of 2020 and the charitable contribution in the year-to-date described in “Non-GAAP Measures,” operating margin was 18.2% in the third quarter and 7.5% in the year-to-date (see “Non-GAAP Measures”).

• The effective income tax rate for the third quarter was 19.9% versus 25.4% in the prior year. The effective income tax rate in the year-to-date was 20.3% versus 21.3% in the prior year. The effective income tax rate for both periods was impacted by the reversal of previously established reserves for uncertain tax positions resulting from the favorable conclusion of a tax examination and the expiration of certain statutes of limitations, the impact of non-deductible transaction related expenses, as well as the application of an updated estimated annual effective income tax rate, which is influenced by the jurisdictional mix of earnings taxed at the statutory tax rates applicable to each jurisdiction. The Company’s effective income tax rate could be negatively impacted to the extent earnings are lower than anticipated in countries that have lower statutory tax rates and higher than anticipated in countries that have higher statutory tax rates. The effective income tax rates for the third quarter and year-to-date of 2019 were increased by an income tax expense of $6 million, or 550 basis points and 130 basis points, respectively, due to a reduction in the estimated Foreign Derived Intangible Income (“FDII”) benefit for fiscal 2019. The effective income tax rate in the year-to-date included the recognition of an income tax benefit of $8 million, or 170 basis points, related to an increase in the estimated fiscal 2018 FDII benefit as a result of U.S. Treasury guidance issued during the three months ended April 30, 2019.

• Net inventories at October 31, 2020 were 4% below the prior year.

• At October 31, 2020, cash and cash equivalents and short-term investments totaled $1.1 billion. Total debt (short-term borrowings and long-term debt) of $1.4 billion represented 44% of stockholders’ equity as compared to 31% in the prior year. This increase from the prior year was primarily the result of a $500 million drawdown on the Company’s revolving credit facility during the first quarter of 2020, which remained outstanding at October 31, 2020. The drawdown proceeds can be repaid at any time. Management believes that cash on hand, internally generated cash flows and the funds available under the Company’s revolving credit facilities are sufficient to support the Company’s liquidity and capital requirements for the foreseeable future.

• On the sustainability front, in September, the Company proudly announced its 2025 Sustainability Goals, which establish a roadmap to guide the Company in its future sustainability efforts, and published the Company’s 10th Sustainability Report. In October, the Company received its results for the 2020 MSCI ESG Rating, and once again achieved a AAA rating, which places the Company in the top 5% of companies in MSCI’s Retail – Consumer Discretionary Sector.

• The Company’s current expectations for fourth quarter of 2020 (“fourth quarter”) now include:
  • A mid-single-digit percentage decline in total net sales relative to the same period in the prior year.
  • A low-double-digit percentage increase in operating earnings relative to the same period in the prior year.
  • A high-single-digit percentage increase in diluted earnings per share relative to the same period in the prior year.

• The Company’s earnings expectations for the fourth quarter exclude certain costs that it will incur upon the closing of the Merger, as the parties to the Merger have not yet established a date on which that transaction will be completed. These expenses, which are expected to be significant, primarily include advisor fees and expenses related to the vesting of outstanding stock-based awards. For additional details regarding these advisor fees and vesting of outstanding stock-based awards, please see the Company’s Preliminary Proxy Statement on Schedule 14A filed with the U.S. Securities and Exchange Commission on November 16, 2020.

Next Scheduled Announcement

To receive email alerts of the timing of future financial news releases, as well as future announcements, please register at investor.tiffany.com (and click on “Contact Us/Email Alerts”).

About Tiffany & Co.

In 1837, Charles Lewis Tiffany founded his company in New York City where his store was soon acclaimed as the palace of jewels for its exceptional gemstones. Since then, TIFFANY & CO. has become synonymous with elegance, innovative design, fine craftsmanship and creative excellence. During the 20th century fame thrived worldwide with store network expansion and continuous cultural relevance, as exemplified by Truman Capote’s Breakfast at Tiffany’s and the film starring Audrey Hepburn.

Today, with more than 14,000 employees, TIFFANY & CO. and its subsidiaries design, manufacture and market jewelry, watches and luxury accessories - including more than 5,000 skilled artisans who cut diamonds and craft jewelry in the Company’s workshops, realizing its commitment to superlative quality. TIFFANY & CO. has a long-standing commitment to conducting its business responsibly, sustaining the natural environment, prioritizing diversity and inclusion, and positively impacting the communities in which we operate.