Tiffany profit forecast trails estimates as store costs climb

(Updated, 12:13 p.m.) Tiffany & Co., the world’s second-largest luxury jewelry retailer, posted fourth-quarter profit that trailed analysts’ estimates and forecast profit for this year that also fell short as store and labor costs rose. More

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Tiffany profit forecast trails estimates as store costs climb

PBN FILE PHOTO/JAIME LOWE
THE OPENING OF TIFFANY & CO. in 2007 at Providence Place Mall brought a smile to the face of patron Rosemarie Ruffel, center, as she tried on a diamond ring borrowed from model Nora Ariffin, right.
Posted 3/21/14

(Updated, 12:13 p.m.)

NEW YORK - Tiffany & Co., the world’s second-largest luxury jewelry retailer, posted fourth-quarter profit that trailed analysts’ estimates and forecast profit for this year that also fell short as store and labor costs rose.

Profit excluding costs to pay an arbitration award to Swatch Group AG in the quarter ended Jan. 31 was $1.47 a share, the New York-based company said Friday in a statement. The average of 22 analysts’ estimates compiled by Bloomberg was $1.52 a share.

Selling, general and administrative expenses rose 7 percent during the quarter on higher store-related and labor costs, Tiffany said. Capital expenditures are projected to rise this year to $270 million as the company invests in information-technology systems.

Full-year earnings per share will rise to a range of $4.05 to $4.15, the New York-based company said Friday in a statement. Analysts projected $4.27, the average of 27 estimates compiled by Bloomberg.

Tiffany, led by CEO Michael Kowalski, said capital expenditures will jump 22 percent this year to $270 million as the 176-year-old company invests in technology systems. The retailer said its worldwide sales would advance in the high single digits in percentage terms in 2014.

“Long term, this is a good move for the company,” Ed Yruma, an analyst with Keybanc Capital Markets Inc., said about the technology upgrades in a phone interview Friday. “There also is a degree of conservatism baked in the guidance which at this state we appreciate.”

Yruma, based in New York, recommends buying the shares.

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

Tiffany rose 1.8 percent to $92.84 at 10:14 a.m. in New York. The stock had declined 1.7 percent this year through yesterday.

“We expect negative short-term reaction to guidance, but the factors likely make sense and don’t affect the longer term,” David Schick, an analyst with Stifel Financial Corp., wrote in a note to clients Friday. Schick, based in Baltimore, recommends buying the shares.

Arbitration award

The net loss for the fourth quarter was $103.6 million, or 81 cents a share, compared with net income of $179.6 million, or $1.40, a year earlier, the company said.

Sales climbed 5.1 percent to $1.3 billion, matching the analysts’ projection. Sales at stores open at least a year increased 6 percent.

On the full year, Tiffany recorded a 6.2 percent increase in revenue to $4 billion, although the Swatch arbitration award dragged down profits. Including the $480.2 million charge recorded on its books, New York-based Tiffany posted full-year net income of $181.4 million, compared with $416.2 million in its fiscal year 2013. Earnings per diluted share totaled $1.41, compared with $3.25 a year earlier.

Sales increased in all regions of the world save one, according to the company, by 5 percent to $1.9 billion in the Americas, by 17 percent to $945 million (on a nominal basis) in the Asia-Pacific, and by 9 percent to $470 million (on a nominal basis) in Europe. Sales in Japan declined for the year by 9 percent to $579 million, although the company attributed that drop to a substantially weaker yen versus the dollar.

Same-store sales increased in all three regions as well. As of Jan. 31, 2014, the company operated 289 stores across the world, 121 in the Americas, 72 in Asia-Pacific, 54 in Japan, 37 in Europe and five in the United Arab Emirates, an increase of 14 on the year.

Tiffany said Dec. 23 it would have to pay an arbitration award of about 402 million Swiss francs ($460 million) to Swatch after the watchmaker claimed a breach of contract at their joint venture.

Swatch and Tiffany began a legal battle in 2011 after the biggest maker of Swiss timepieces alleged the U.S. jeweler blocked development of their partnership. Tiffany said it had honored its obligations. The two companies had forged an alliance almost four years earlier to develop and sell watches under the Tiffany brand and share the profit.

Cie. Financiere Richemont SA is the world’s largest luxury jewelry maker.

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