By Tyler Durden at ZeroHedge
As of this moment, the DXY dollar index currently just above 95, is lower than where it was a year ago, but that does not stop companies from using it as an excuse for continuing earnings weakness. Case in point, Tiffany & Co (which once used to be a bellwether for the luxury consumer and the overall market, but lately not so much) which moments ago reported Q4 earnings of $1.46, beating consensus expectations of $1.40, on inline revenues of $1.21bn, 6% lower than a year ago, as sales in the US, Asia Pacific and Europe all declined in the mid-single digits, offset by a 9% rebound in Japan; comparable store sales declined 5%.
This is what the company said: “We faced various challenges during the year that negatively affected our financial results, especially related to the strong U.S. dollar.” The company further said that “worldwide sales growth of only 2% on a constant-exchange-rate basis, or down 3% as reported, along with the lack of earnings growth, did not meet the forecasts we had communicated at the start of the year;” the good news is that since the company preserved “gross margin, and strong free cash flow” it was still able to return cash to shareholders through another dividend increase and share repurchases.
Mostly repurchases, which in 2015 were conducted at an average price of $78/share or about 10% higher than the current stock price:
The Company spent $220 million in the full year (at an average cost of $78 per share), including $104 million in the fourth quarter (at an average cost of $73 per share) to repurchase shares of its Common Stock. On January 21, 2016, the Company’s Board of Directors approved a new stock repurchase program, authorizing the repurchase of up to $500 million of the Company’s Common Stock; this new program immediately replaced the Company’s previously-existing program that had authorized the repurchase of up to $300 million of its Common Stock, and which had $59 million remaining available for repurchases at the time of termination. At January 31, 2016, $494 million remained available for repurchases under the new program that expires on January 31, 2019.
In other words, expect even more buybacks.
But the biggest surprise was in the guidance, where TIF lowered guidance for Q1, and now sees EPS down 15-20%, nearly three times worse than the consensus estimate of -7%.
The company also issued Q2 guidance of down 5-10%, and expects growth to resume in the second half. Finally, TIF issues downside guidance for FY17, sees EPS unchangd to down mid single digits from $3.83 vs. $3.88 Capital IQ Consensus; it also sees FY17 revs equal to last year’s $4.10 bln) vs. $4.15 bln Capital IQ Consensus. Basically more deteriorating earnings all around, offset by the company removing the number of outstanding shares. Form the release:
Management currently forecasts that full year earnings per diluted share in 2016 will range from unchanged to a mid-single-digit decline compared with 2015’s $3.83 per diluted share. Based on sales trends in the current quarter-to-date and an assumption of gradual improvement over the course of the year, management expects that earnings per diluted share in the first quarter may decline by 15-20%, followed by a 5-10% decline in the second quarter and a resumption of growth in the second half. This annual forecast is based on the following assumptions, which are approximate and may or may not prove valid: (i) worldwide net sales on a constant-exchange-rate basis increasing by a low-single-digit percentage, but approximately equal to the prior year when translated into U.S. dollars; (ii) increasing worldwide gross retail square footage by 2%, net through 11 openings, 6 relocations and 9 closings; (iii) operating margin below the prior year’s 19.7% (excluding the prior year’s charges) due to an expected increase in gross margin but with SG&A expense growth (despite some benefit from lower pension costs) exceeding sales growth; (iv) interest and other expenses, net unchanged from 2015; (v) an effective income tax rate slightly lower than the prior year; (vi) net inventories unchanged from the prior year; (vii) capital expenditures of $260 million; and (viii) free cash flow of at least $400 million.
In other words, TIF just did what Caterpillar did yesterday when it cut guidance; however just like yesterday we expect TIF to unleash some buybacks today to offset this “fundamental weakness” and the stock will surely close higher.