Tiffany 2Q16 Earnings Call Notes

Tiffany’s (TIF) Management on Q2 2016 Results

Mark Aaron

6% decrease in sales in line with what we anticipated

“Worldwide sales were close to what we anticipated, declining 6% on both a GAAP basis and on a constant exchange rate basis, and generally continued to reflect the soft trends across regions that we’ve experienced for several quarters, which we attribute partly to domestic customer spending, but also to lower tourist spending, predominantly by Chinese tourists. However, we had a solid increase in gross margin and experienced less deleveraging of SG&A expenses than we had anticipated due to a slight SG&A expense decline, and our balance sheet remains strong. Looking forward, while the results for the quarter were a little better than we expected, we think it’s prudent to maintain our existing outlook for the full year. ”

Decline reflected softness in all regions

“So looking at second quarter sales results in more detail, the 6% decline in worldwide sales reflected varying degrees of softness in all regions. There was no translation effect on total sales as the stronger yen offset the negative translation effects from the stronger US dollar against other currencies. In the Americas, both total sales and comparable-store sales declined 9%, which we attribute to generally soft demand in US customer spending, as well as lower spending in the US by Chinese and other tourists, especially in New York and in other high tourism markets.”

We believe macro and political uncertainties softening high end

“We can only speculate on why domestic US consumer spending at the high end has been generally soft, but we believe that macro market and political uncertainties are likely playing a role in restrained consumer behavior.

Softness in asia but strength in China

“In the Asia Pacific region, total sales and comparable-store sales declined 6% and 12% in the quarter. The sales declines were due to a combination of lower average price, lower unit volume, and a shift in mix and reflected softness across much of the region. We were pleased with healthy total and comparable store sales growth in China, as well as in Korea. However, continued meaningful sales declines in Hong Kong, Taiwan, Macau, and Singapore contributed to the overall regional softness.”

Interestingly saw an uptrend in sales following the vote

“There’s obviously uncertainty and anxiety regarding the economic implications of Brexit, but, interestingly we saw an uptrend in the UK sales almost immediately following the vote. We believe that the weakening of the pound has made London a more attractive tourist shopping destination.”