Tiffany exceeded expectations
Tiffany (TIF) reported its fiscal 1Q17 results on May 24, 2017. The company’s EPS (earnings per share) of $0.74 surpassed analysts’ estimate of $0.70 and rose 7.2% on a YoY (year-over-year) basis. Jewelers including Tiffany and Signet (SIG) are having a tough time as weak traffic and the strong US (SPY) dollar are taking a toll on their sales, which is hurting their profitability. However, the continued lower acquisition costs of diamonds has brought some respite.
What’s behind profitability growth?
Despite soft sales growth, lower input costs (mainly diamonds), a low-single-digit increase in pricing, a decline in interest expenses, and a favorable tax rate helped the company to report better-than-expected EPS growth.
The company’s gross margin expanded 80 basis points to 62.0% in fiscal 1Q17 as lower input costs and price restructuring more than offset the tepid sales growth. Meanwhile, operating margin improved 110 basis points to 16.2%, benefiting from the higher gross margin.
Going forward, management reaffirmed its guidance and expects adjusted EPS to increase in the mid-single-digit range for fiscal 2017, driven by improvements in the gross and operating margins. Price restructuring, productivity savings, and lower input costs are expected to boost the company’s profitability in the coming quarters. However, soft sales on account of weak consumer spending and adverse currency movement will continue to be a drag.