Swatch Battle Cost Pushes Tiffany into Q4 Loss

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

Bestsellers from Tiffany's Enchant collection

Bestsellers from Tiffany’s Enchant collection

New York—Tiffany & Co. faced a tough loss back in December when an arbitration court ruled the jewelry retailer would have to pay Swatch Group, its former partner in a watch venture, some $449 million as a settlement in a legal dispute.

The pain of that loss was evident today when Tiffany reported its fourth quarter earnings where the payment to Swatch pushed it into a loss. For the quarter ended Jan 31, Tiffany posted a 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. Excluding the $473 million net pretax charge from the Swatch payment, Tiffany’s profit would be $1.47 a share. That still misses analysts’ average estimate for $1.52 a share.

Total revenue rose 5% to $1.3 billion from $1.24 billion, and matching analysts’ average estimate. Total comparable store sales rose 6% due to higher sales in all regions.

Conservative 2014 Outlook?

By geographic region, the Americas reported a 6% increase to $659 million. Comparable store sales increased 7% led by growth in New York flagship store sales as well as modest growth in branch store sales.

In Asia-Pacific, sales were up 8% to $275 million while comparable store sales increased 4% in the quarter due “to growth in Greater China and most other markets.”

Japan posted a 12% gain to $169 million despite the impact of the weaker yen vs. dollar.

In Europe, total sales increased 10% to $161 million with comparable store sales up 2% due to growth in most countries. Other sales increased 47% to $35 million.

For its full year, net income was down 56% to $181.4 million, or $1.41 a share, from $416.2 million, or $3.25 a share, in the previous year. Adjusted earnings were $3.73 a share. Annual revenue increased 6% to $4.03 billion from $3.79 billion.

“We are proud of our performance this past year. Sales and operating earnings (excluding the arbitration-related charge) rose to record levels,” said Michael J. Kowalski, chairman/ceo. “Sales growth was led by fine and statement jewelry, new or expanded jewelry collections including the Atlas, Ziegeld and Harmony collections, and continuing strength in our iconic jewelry designs.”

During fourth quarter, selling, general and administrative expenses rose 7.3% to $472.7 million, boosted by higher store-related spending and labor costs.

Gross margin increased 1.4 points to 60.5% in the fourth quarter largely benefited from reduced product cost pressures, as well as price increases taken earlier in the year. “In addition, a sales mix shift in the full year toward higher-priced, lower gross margin products offset some of those benefits,” the company said.

New Stock Repurchase Plan

Looking ahead, Tiffany gave a conservative forecast. For its full fiscal year, the jeweler estimated earnings between $4.05 and $4.15 a share with total worldwide sales rising by a “high single-digit” percent on the strength across all regions. Analysts predicted $4.27 a share for the year.

Tiffany also announced that its board approved the repurchase of up to $300 million of its common stock. The company’s prior repurchase program expired at the end of January. The new buyback will expire on March 31, 2017.