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Last Update: 29-Nov-12 08:27 ET
Tiffany shares fall 7% as earnings fail to shine
Tiffany & Co (TIF $58.77 -4.96) reported third quarter earnings of $0.49 per share, $0.14 worse than the Capital IQ consensus of $0.63, while revenues rose 3.8% year/year to $852.7 million versus the $858.1 mln consensus. Sales in Americas (nearly half of rev) +3%; Asia-Pacific +2%, Japan slightly higher; Europe +6%. Gross margin -350 bps YoY to 54.4%; The declines largely resulted from continued high precious metal and diamond costs, sales mix favoring higher-priced, lower margin products, and reduced sales leverage on fixed costs. Sales mix was affected by, among other items, lower-than-expected sales of silver jewelry. The effective income tax rate was 38.4% in the third quarter, versus 33.9% a year ago. The company issued downside guidance for fiscal year 2013 with lowered EPS to $3.20-3.40 from $3.55-3.70 versus the $3.59 consensus and lowered FX adjusted sales growth to +5-6% from +6-7%. Operating margin below the prior year due to a decline in the gross margin. "Three months ago, we had anticipated that third quarter results would be affected by continued economic weakness in many markets as well as by challenging comparisons to last year when net sales were up 21% and net earnings had increased 52% excluding nonrecurring items. However, gross margin was weaker than we expected and Tiffany's effective tax rate was higher than we expected. As a result, net earnings were below our expectations... We continue to maintain a cautious near-term outlook about global economic conditions. However, we expect to see improving results in this holiday season, partly benefiting from easing year-over-year sales comparisons, but also tied to the success of new TIFFANY & CO. stores we've added this year, new product introductions and more product-focused marketing communications."
