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Tiffany & Co.


Dear ShareHolder

We look back on fiscal 2019 as a year of progress on all of our strategic initiatives. My thoughts go first to our Tiffany teams around the world. Thanks to their dedication, professionalism and tenacity we managed to achieve so much in spite of an external environment that—with persisting protests in France and Hong Kong, rapidly changing tourist flows and, in the last month of our fiscal year, the outbreak of COVID-19—has challenged our operations. Our teams have been a precious resource to our Company, as we navigate our iconic Brand through these turbulent times. A primary focus in 2019 was on the local consumers in our key markets. Through crafted marketing and brand messaging campaigns and curated product assortments for the local markets, we believe that this focus and attention was rewarded with growth in domestic sales in all regions, including the Chinese Mainland where we experienced strong double-digit growth for the year. For our global store network, we continued to focus on individual markets’ luxury sensibilities. For example, we completed the enlargement of our flagship store in Shanghai, now the largest Tiffany store in Asia, in a prominent street-facing location within the Hong Kong Plaza mall. We believe that the size and location of a store matters to these luxury consumers and we are adapting our in-country network accordingly through sensible relocations. At the Shanghai flagship store, we also celebrated the opening of the first Tiffany Blue Box Café on the Chinese Mainland. We also experimented with various pop-up stores around the world and opened concept stores such as on Cat Street in Tokyo, Japan.


The historical trends and results reported in this annual report on Form 10-K should not be considered an indication of future performance. Further, statements contained in this annual report on Form 10-K that are not statements of historical fact, including those that refer to plans, assumptions and expectations for future periods, are "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, each as amended. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed Merger (as defined under "Item 1. Business - Entry into Merger Agreement") and the anticipated benefits thereof. Forward-looking statements include, but are not limited to, statements that can be identified by the use of words such as 'expects,' 'projects,' 'anticipates,' 'assumes,' 'forecasts,' 'plans,' 'believes,' 'intends,' 'estimates,' 'pursues,' 'scheduled,' 'continues,' 'outlook,' 'may,' 'will,' 'can,' 'should' and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the Company's plans, assumptions, expectations, beliefs and objectives with respect to the proposed Merger; store openings and closings; store productivity; the renovation of the Company's New York Flagship store, including the timing and cost thereof, and the temporary relocation of its retail operations to 6 East 57th Street; product introductions; sales; sales growth; sales trends; store traffic; the Company's strategy and initiatives and the pace of execution thereon; the amount and timing of investment spending; the Company's objectives to compete in the global luxury market and to improve financial performance; retail prices; gross margin; operating margin; expenses; interest expense and financing costs; effective income tax rate; the nature, amount or scope of charges resulting from recent revisions to the U.S. tax code; net earnings and net earnings per share; share count; inventories; capital expenditures; cash flow; liquidity; currency translation; macroeconomic and geopolitical conditions; growth opportunities; litigation outcomes and recovery related thereto; amounts recovered under Company insurance policies; contributions to Company pension plans; and certain ongoing or planned real estate, product, marketing, retail, customer experience, manufacturing, supply chain, information systems development, upgrades and replacement, and other operational initiatives and strategic priorities.


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The Company leases its various store premises (other than the New York Flagship store, which is owned by the Company) under arrangements that generally range from 3 to 10 years. The following table provides information on the number of locations and square footage of Company-operated TIFFANY & CO. stores as of January 31, 2020. * The total gross retail square footage for the New York Flagship is through its closure for renovation in January 2020, and Other stores does not include the total gross retail square footage for the Tiffany Flagship Next Door. Excluded from the store count and square footage amounts above are pop-up stores (stores with lease terms of 24 months or less).


The Company's Retail Service Center ("RSC"), located in Parsippany, New Jersey, comprises approximately 370,000 square feet. Approximately half of the building is devoted to office and information technology operations and half to warehousing, shipping, receiving, merchandise processing and other distribution functions. The RSC receives merchandise and replenishes retail stores. The Company has a 20-year lease for this facility, which expires in 2025, and has two 10-year renewal options.


The Company owns the Customer Fulfillment Center ("CFC") in Whippany, New Jersey and leases the land on which the facility resides. The CFC is approximately 266,000 square feet and is primarily used for warehousing merchandise and processing direct-to-customer orders. The land lease expires in 2032 and the Company has the right to renew the lease for an additional 20-year term.


The Company owns and operates jewelry manufacturing facilities in Cumberland, Rhode Island and Lexington, Kentucky, leases a jewelry manufacturing facility in Pelham, New York, leases a facility in the Dominican Republic which performs certain functions such as jewelry polishing and assembly and leases a facility containing its Jewelry Design and Innovation Workshop in New York, New York. Lease expiration dates range from 2023 to 2029. The owned and leased facilities total approximately 244,000 square feet.The Company leases a facility in Belgium and owns facilities in Botswana, Cambodia, Mauritius and Vietnam (although the land in Botswana, Cambodia and Vietnam is leased) that prepare, cut and/or polish rough diamonds for use by Tiffany. These facilities total approximately 277,000 square feet and the lease expiration dates range from 2020 to 2062.


Tiffany’s 2019 Q1 results were not disappointing , with worldwide sales increasing by a 10% to $1 billion and comparable sales off 8%. Net earnings Increased too, Up 12% from previous year.

Yet while CEO Alessandro Bogliolo, CFO Mark Erceg, VP of investor relations Mark Aaron, and treasurer Jason Wong announced the sobering news in the earnings conference call, their enthusiasm and confidence about the path ahead was clearly evident as well. This team is on fire to make their dreams for the Tiffany brand real.“We remain focused on the strategic priorities which are within our control,” the CEO said in the earnings call. Bogliolo added that his team is “aggressively pursuing numerous ways we can enhance the excitement and relevance of this amazing brand. We strongly believe that effectively executing our strategic priorities, first and foremost, will be what takes this company to new heights of success.”



Sales in the Americas represented 44% of worldwide net sales in 2019, while sales in the United States ("U.S.") represented more than 90% of net sales in the Americas. Sales are transacted through the following channels: retail (in the U.S., Canada and Latin America), Internet and catalog (in the U.S. and Canada), business-to-business (in the U.S.) and wholesale distribution (in Latin America and the Caribbean).




Sales in Asia-Pacific represented 28% of worldwide net sales in 2019, while sales in Greater China represented approximately 60% of net sales in Asia-Pacific. Sales are transacted through the following channels: retail, Internet (in Australia) and wholesale distribution.



Sales in Europe represented 11% of worldwide net sales in 2019, while sales in the United Kingdom ("U.K.") represented approximately 40% of net sales in Europe. Sales are transacted through the following channels: retail, Internet and wholesale distribution.




The Company receives earnings from a licensing agreement with Luxottica Group S.p.A., for the development, production and distribution of TIFFANY & CO. brand eyewear, and from a licensing agreement with Coty Inc., for the development, production and distribution of TIFFANY & CO. brand fragrance products. The earnings received from these licensing agreements represented less than 1% of worldwide net sales in 2019.


The TIFFANY & CO. brand (the "Brand") is the single most important asset of Tiffany and, indirectly, of the Company. The strength of the Brand goes beyond trademark rights (see "TRADEMARKS" below) and is derived from consumer perceptions of the Brand. Management monitors the strength of the Brand through focus groups and survey research. Management believes that consumers associate the Brand with high-quality gemstone jewelry, particularly diamond jewelry; sophisticated style and romance; excellent customer service; an elegant store and online environment; upscale store locations; "classic" product positioning; and distinctive and high-quality packaging materials (most significantly, the TIFFANY & CO. blue box). Tiffany's business plan includes expenses to maintain the strength of the Brand, such as the following:

Maintaining its position within the high-end of the jewelry market requires Tiffany to invest significantly in diamond and gemstone inventory, which carries a lower overall gross margin; it also causes some consumers to view Tiffany as beyond their price range; To provide excellent service, stores must be well staffed with knowledgeable professionals;

Elegant stores in the best "high street" and luxury mall locations are more expensive and difficult to secure and maintain, but reinforce the Brand's luxury connotations through association with other luxury brands; While the "classic" positioning of much of Tiffany's product line supports the Brand and requires sufficient display space in its stores, management's strategic priorities also include the accelerated introduction of new design collections primarily in jewelry, but also in non-jewelry products, which could result in a necessary reallocation of product display space;

Tiffany's packaging supports consumer expectations with respect to the Brand but is expensive; and A significant amount of marketing across print, digital and social media, as well as public relations events are required to both reinforce the Brand's association with luxury, sophistication, style and romance, as well as to market specific products.