SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 13, 2002
TIFFANY & CO.
(Exact name of Registrant as specified in its charter)
Delaware 1-9494 13-3228013
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification Number)
727 Fifth Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8000
Item 5. Other Events
On November 13, 2002, Registrant issued the following press release reporting
Tiffany's third quarter earnings meet expectations; company provides business
update.
NEW YORK, November 13, 2002 - Tiffany & Co. (NYSE-TIF) today reported increases
of 10 percent in net sales and 46 percent in net earnings in the three months
(third quarter) ended October 31, 2002. Earnings of 24 cents per diluted share
included a non-recurring tax benefit of 5 cents; excluding that benefit,
earnings rose 13 percent and met the Company's previously-published expectation
of 18-20 cents.
In the third quarter, net sales of $366,033,000 were 10 percent higher than
$333,074,000 in the prior year. On a constant exchange rate basis that excludes
translation effects between foreign currencies and the U.S. dollar, net sales
increased 10 percent and worldwide comparable store sales rose 3 percent. Net
earnings rose 46 percent to $35,184,000, or 24 cents per diluted share, from
$24,028,000, or 16 cents per diluted share, in the prior year. Net earnings
benefited from an effective income tax rate of 20.9 percent, which includes the
effect of a non-recurring tax benefit of $8,015,000, or 5 cents per share. The
adjustment principally reflects the recognition of the cumulative U.S. tax
benefits as provided by the Extraterritorial Income Exclusion Act provision of
the Internal Revenue code. The Company determined in the third quarter that this
tax benefit was applicable to its operations and therefore, has recognized a tax
benefit in the quarter.
In the nine months (year-to-date) ended October 31, 2002, net sales rose 4
percent to $1,087,589,000, compared with $1,040,776,000 in the prior year. On a
constant exchange rate basis, net sales increased 5 percent and worldwide
comparable store sales declined 1 percent. Net earnings rose 11 percent to
$100,607,000, or 68 cents per diluted share, compared with $90,842,000, or 60
cents per diluted share, in the prior year.
Results in Tiffany's channels of distribution were as follows:
o U.S. Retail sales increased 11 percent to $168,493,000 in the third
quarter and 5 percent to $521,381,000 in the year-to-date. Comparable
store sales rose 9 percent in the third quarter (8 percent in the
branch stores and 10 percent in the New York flagship store) and 3
percent in the year-to-date (3 percent in the branch stores and
fractionally in the New York flagship store). Comparable store sales
in the third quarter were attributable to an increased number of
transactions, with increased sales to local customers and tourists.
Year-to-date, the Company has opened four new U.S. stores.
o International Retail sales rose 6 percent to $156,281,000 in the third
quarter and 2 percent to $452,381,000 in the year-to-date. On a
constant exchange rate basis, sales increased 6 percent in the third
quarter and 4 percent in the year-to-date. On that basis, comparable
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retail store sales in the third quarter and year-to-date declined 7
percent in both periods in Japan (total retail sales in Japan rose 1
percent in the quarter and fractionally in the year-to-date),
increased 1 percent and 2 percent in other Asia-Pacific markets and
rose 9 percent and declined 3 percent in Europe. This year, the
Company has opened department store boutiques in Japan (2), Korea and
Taiwan and, last week, in Paris.
o Direct Marketing sales increased 11 percent to $37,337,000 in the
third quarter and 11 percent to $109,905,000 in the year-to-date. In
those respective periods, combined Internet/catalog sales rose 19
percent and 27 percent, while Business sales rose 1 percent and
declined 5 percent.
o The Company has established a new channel of distribution, "Specialty
Retail," to include consolidated results from Little Switzerland,
Inc., (for October 2002) as well as consolidated results from any
future ventures operated under non-TIFFANY & CO. trademarks or trade
names. The Company owned 98 percent of Little Switzerland at the end
of the third quarter and expects to complete a merger whereby Little
Switzerland, Inc. will become a wholly-owned subsidiary on November
20, 2002. Specialty Retail sales were $3,922,000 in the third quarter.
Michael J. Kowalski, president and chief executive officer, said, "We are
pleased with Tiffany's ability to generate solid earnings growth in the third
quarter, despite a continuation of challenging and uncertain external
conditions, due to sales growth and prudent expense management. Across the U.S.,
we achieved generally broad-based sales growth, which we acknowledge compares to
the temporarily depressed levels in last year's third quarter. In Japan, we are
in the process of repositioning our merchandising and marketing efforts to
mitigate the effect of declining engagement ring sales, which have resulted from
lessened demand."
In the third quarter and year-to-date, gross margins (gross profit as a
percentage of net sales) of 59.0 percent in both periods were higher than the
prior year largely due to favorable shifts in sales mix and product
manufacturing/sourcing efficiencies. The expense ratios (selling, general and
administrative expenses (SG&A) as a percentage of net sales) of 45.3 percent and
43.6 percent were higher than the prior year due to insufficient sales volume to
offset SG&A increases and planned increases in marketing expenses.
Tiffany's consistent pursuit of its focused growth strategies is supported by
its strong financial position. At October 31, 2002, inventories of $777,932,000
were 11 percent higher than a year ago, primarily due to the opening of new
stores, introduction of new products, expanded manufacturing operations and
inclusion of Little Switzerland's inventories. Net-debt leverage of 22 percent
compared with 20 percent in the prior year.
The Company purchased and retired 350,000 shares of its Common Stock in the open
market during the third quarter at an average cost of $25.62 per share. The
Company currently has $32 million available for future purchases under its
authorized plan.
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Mr. Kowalski continued, "While the near-term outlook remains uncertain, Tiffany
is exceptionally well positioned for the upcoming holiday season. Customers are
responding very favorably to our product assortment that includes several new
jewelry designs and an important new collection of watches. Our stores are fully
prepared to deliver a superior shopping experience. Overall, Tiffany's
extraordinary product offerings and service make us more appealing and relevant
than ever in the holiday season and beyond. "
Regarding the Company's near-term outlook, Mr. Kowalski added, "Our internal
review leads us to expect relatively healthy overall results with
low-double-digit net sales growth in this fourth quarter. We now expect
comparable store sales in the U.S. to increase in a mid-single-digit range
versus the prior year. In Japan, we expect comparable store sales to range from
flat to a mid-single-digit decline. We also expect gross margin modestly lower
than the prior year, a modest increase in the expense ratio and an effective tax
rate of 38.9 percent in the fourth quarter. Therefore, our net earnings per
diluted share expectation calls for a range of 60-65 cents, compared with 55
cents in the prior year. We expect to report sales results for the
November-December holiday season on Tuesday January 7, 2003."
Separately, the Company also announced that it will no longer solicit new
employee service award programs through its Business Sales division and will
phase out of the service award business as existing customer commitments are
satisfied. Service awards programs are used by employers to commemorate
employees' anniversaries with gifts. Tiffany's Business Sales division will
continue to offer a range of business gifts, as well as event-related trophies
and other awards. Sales affected by this action represent less than $30 million
annually, or less than half of the Business Division's sales. The company
expects to take a related pre-tax charge of approximately $1.3 million in its
fourth quarter ending January 31, 2003.
James E. Quinn, vice chairman, said, "This portion of our Business Sales
division was coming under increasing pressure to offer lower priced products
that fall outside of Tiffany's traditional categories and quality standards.
Given our high level of service, we were faced with marginal profitability and
the imperative to maintain the TIFFANY & CO. brand image. It has been a tough
decision to make, but it is the right decision."
The Company will host a conference call today at 8:30 a.m. (EST) to review its
third quarter results and outlook. Interested parties may listen to a broadcast
on the Internet at www.shareholder.com/tiffany and www.streetevents.com.
Tiffany & Co. is the internationally renowned jeweler and specialty retailer.
Sales are made primarily through company-operated TIFFANY & CO. stores and
boutiques in the Americas, Asia-Pacific and Europe. Direct Marketing includes
Tiffany's Business Sales division, catalog and Internet sales. Additional
information can be found on Tiffany's Web site, www.tiffany.com, and on its
shareholder information line (800) TIF-0110.
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This press release contains certain "forward-looking" statements concerning
expectations for sales, margins and earnings. Actual results might differ
materially from those projected in the forward-looking statements. Information
concerning factors that could cause actual results to differ materially are set
forth in Tiffany's 2001 Annual Report and in Form 10-K, 10-Q and 8-K 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.
# # #
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TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share amounts)
Three months Nine months
ended October 31, ended October 31,
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2002 2001 2002 2001
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Net sales $ 366,033 $ 333,074 $ 1,087,589 $ 1,040,776
Cost of sales 150,220 140,235 445,554 441,926
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Gross profit 215,813 192,839 642,035 598,850
Selling, general and administrative expenses 165,900 146,798 474,478 437,918
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Earnings from operations 49,913 46,041 167,557 160,932
Other expenses, net 5,446 5,993 14,052 9,527
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Earnings before income taxes 44,467 40,048 153,505 151,405
Provision for income taxes 9,283 16,020 52,898 60,563
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Net earnings $ 35,184 $ 24,028 $ 100,607 $ 90,842
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Net earnings per share:
Basic $ 0.24 $ 0.17 $ 0.69 $ 0.62
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Diluted $ 0.24 $ 0.16 $ 0.68 $ 0.60
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Weighted average number of common shares:
Basic 145,137 145,273 145,450 145,743
Diluted 148,066 150,114 149,046 151,046
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TIFFANY & CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
October 31, January 31, October 31,
2002 2002 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 90,646 $ 173,675 $ 106,404
Accounts receivable, net 96,112 98,527 99,094
Inventories, net 777,932 611,653 702,752
Deferred income taxes 48,660 41,170 38,030
Prepaid expenses and other current assets 43,171 26,826 40,507
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Total current assets 1,056,521 951,851 986,787
Property, plant and equipment, net 650,499 525,585 511,271
Deferred income taxes 6,377 4,560 5,360
Other assets, net 154,463 147,872 153,375
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$ 1,867,860 $ 1,629,868 $ 1,656,793
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 58,268 $ 40,402 $ 113,331
Current portion of long-term debt 51,500 51,500 -
Obligation under capital lease - - 45,221
Accounts payable and accrued liabilities 182,123 134,694 150,889
Income taxes payable 485 48,997 2,543
Merchandise and other customer credits 39,520 38,755 35,418
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Total current liabilities 331,896 314,348 347,402
Long-term debt 295,947 179,065 237,548
Postretirement/employment benefit obligations 33,999 29,999 28,822
Other long-term liabilities 80,843 69,511 74,602
Stockholders' equity 1,125,175 1,036,945 968,419
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$ 1,867,860 $ 1,629,868 $ 1,656,793
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Certain reclassifications were made to the prior periods' condensed consolidated balance sheets.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIFFANY & CO.
BY: /s/ Patrick B. Dorsey
____________________________________
Patrick B. Dorsey
Senior Vice President, Secretary and
General Counsel
Date: November 13, 2002