Tiffany & Co. (TIF)
Q1 2010 Earnings Call Transcript
May 27, 2010 8:30 a.m. ET

Executives

Mark L. Aaron – Vice President, Investor Relations
James N. Fernandez – Executive Vice President and Chief Financial Officer

Presentation

Operator

Good day, everyone and welcome this Tiffany & Company First Quarter Conference Call. Today''s call is being recorded. With us today are Mr. Mark Aaron, Vice President of Investor Relations and Mr. James Fernandez, Chief Financial Officer and Executive Vice President. At this time, I would like to turn the call over to Mr. Aaron. Please go ahead, sir.

Mark L. Aaron

Thank you. Good morning and thanks to everyone for joining us. On today''s call, Jim and I will review Tiffany''s first quarter results and comment on the outlook for the rest of the year. Before continuing, please note Tiffany''s Safe Harbor language 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 if set forth in Tiffany''s 2009 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. We are pleased to say that the improved sales and earnings performance we observed in the latter part of 2009 has continued into 2010 and in the first quarter surpassed our expectations. And we were also pleased that the growth was generally broad-based geographically and by price point although we attribute much of the strong improvement to comparisons to the troughs of a year ago.

Before reviewing sales by region, you should note in today''s news release that we are now expanding our disclosure by geographical segment to align external reporting with changes in our organizational structure and greater decision-making and accountability at the regional level.

One revision is to report Japan separately from Asia-Pacific. Also, results for certain emerging markets, such as Russia and the Middle East where we sell to distributors for their resale in those markets, have moved out of Asia-Pacific and Europe and into the other segment.

We''ve posted prior-year sales on our website under the headings Financial Information and Reportable Segments. Prior-year operating earnings by segment will be reported in our 10-Q report as we move through the year. Having noted that, Tiffany''s worldwide sales rose 22% in the first quarter after declining 22% in last year''s first quarter.

Let''s now look at sales by segment. Sales in the Americas increased 22% in the first quarter, which was better than we expected and compared with a 31% decline last year. The 22% increase was generated by increased transactions in all major product categories and an increase in the average transaction size. Traffic and conversion rose too.

In terms of price stratification, we continued to see growth in sales and transactions across the range of price strata from silver jewelry to diamond jewelry, with the largest percentage increases in jewelry above $50,000. Of course, high-end statement jewelry was the most depressed category a year ago.

We are now reporting comparable store sales for the entire Americas as opposed to just the U.S. although the U.S. is the largest driver of the segment, representing 91% of sales in this segment in 2009.

On a constant exchange rate basis, America''s sales increased 20% and comps rose 15% versus a comp decline of 32% last year. In terms of the monthly trend, America’s comps rose 18% in February, 21% in March and 7% in April. This contrasted with respective monthly comp declines of 32%, 36% and 29% in the Americas last year.

Sales in the New York flagship store rose 26% in the quarter versus a 42% decline last year, while comparable America’s brand store sales rose 13% versus a 30% decline last year. The comp store sales growth was pretty broad-based in the U.S., although we did note softness in our Southwest region as well as in Hawaii. Stores in Canada, Mexico and Brazil posted strong increases in the quarter.

In terms of customer mix, more than half of the comp growth was generated by increased spending by domestic customers with a smaller contribution from foreign tourists. We believe sales in April were adversely affected by the Icelandic volcano, which reduced foreign tourists travel to New York and some other markets too.

We expect that much of that travel will eventually be rescheduled so the spending may just be temporarily deferred. Direct marketing sales in the Americas also performed well in the first quarter with combined Internet and catalog sales posting a 23% increase that was better than we expected and which compared with a 17% sales decline last year.