Tiffany & Co. yesterday released its financial results for the three months ended April 30, 2020 (Q1), reporting a 45% decline year-on-year in worldwide net sales to $ 556 million, primarily as a result of the temporary closures of a substantial number of the Company’s stores around the world due to the COVID-19 pandemic.

The company said it was hard hit as its accounting period begins on February 1, meaning that, unlike in the case of those that follow the calendar year, the COVID-19 pandemic affected its entire quarter. As of April 30, 2020, approximately 70% of the Company’s retail stores remained closed worldwide.

Announcing that globally comparable sales declined 44%; the company said that on a constant-exchange-rate basis, net sales declined by 44% as compared to the prior year and comparable sales declined 43%.

Tiffany also reported a net loss in the quarter of $65 million compared to net income of $125 million in the same period a year earlier, though it added that excluding certain costs recorded in the period related to the pending acquisition of the Company by LVMH and certain other non-recurring items, the first quarter net loss was $64 million.

The company also revealed that retail sales in Mainland China have revived remarkably after the lockdown was lifted. From a decline of 85% and 15% during the first and second months of the quarter, sales rose approximately 30% during April, as compared to the earlier year. In May, the figure reached approximately 90%.

Noting that “there is evidence that the strategic decisions we took to focus on our Mainland China domestic business… (are) paying off”, Tiffany emphasised, “(This) also confirms that our decision to invest heavily in growing our domestic business in Mainland China was particularly prudent and well-timed, given the recent sharp decline in Chinese tourism abroad and the increase in local consumption.”

Alessandro Bogliolo, Chief Executive Officer, said, “The entire Tiffany family has shown extraordinary agility and is fully committed to ensuring that the deep connection we have built with our customers is enhanced and strengthened during these difficult times. While the first quarter was very challenging with sales and earnings significantly impacted by COVID-19, the impact of which we expect to negatively affect our full-year sales and earnings relative to 2019, I am confident Tiffany’s best days remain in front of us because there is evidence that the strategic decisions we took to focus on our Mainland China domestic business, global e-commerce, and new product innovation are paying off - even against the backdrop of a global pandemic.”

The CEO also reported that the company’s global e-commerce business has performed well in the quarter due, in part, to last year’s complete re-platforming of the front-end of its e-commerce sites and its decision to stand up a sales-enabled website in Mainland China.

Tiffany reported, “First quarter e-commerce sales were up 23% globally with key markets such as the United States and the United Kingdom up 14% and 15%, respectively. Additionally, sales through our Mainland China e-commerce portal have grown sequentially every quarter since the portal was launched last July. Our strong global online sales trend has continued through May, with global e-commerce sales more than doubling those of May 2019, reflecting significant increases across every region, and bringing our global e-commerce sales up to approximately 15% of our total net sales for the fiscal year-to-date May period versus the 6% that global e-commerce sales represented in each of the last three full fiscal years.”

Giving a region by region overview, Tiffany reported:

In the Americas, total net sales declined 45% to $225 million, which included a comparable sales decline of 45%. This was due to COVID-19 and the resulting closures of substantially all stores in the region that began in mid-March and persisted through the end of the first quarter.

In Asia-Pacific, total net sales declined 46% to $174 million and comparable sales declined 45%. The declines were on account of the impact of COVID-19 that caused store closures in Mainland China beginning in February and spread to the rest of the Asia-Pacific markets in March and April. Stores began to re-open in Mainland China at the end of February. As of April 30, 2020, approximately 85% of the Company’s retail stores in this region were fully or partially open.

In Japan, total net sales declined 40% to $86 million and comparable sales declined 41% due to the effects of COVID-19, including the resulting closures of substantially all of the Company’s stores across the region, which primarily began in early April 2020, and the decline in tourist traffic that persisted throughout the quarter. As of April 30, 2020, approximately 5% of the Company’s retail stores in this region were fully or partially open.

In Europe, total net sales declined 40% to $61 million, and comparable sales declined 42%. This reflected the impact of COVID-19 and the resulting store closures that primarily began in mid-March and persisted through the second half of April, when various markets slowly began re-opening. As of April 30, 2020, approximately 15% of the Company’s retail stores in this region were fully or partially open.

Other net sales of $9 million were 65% below the prior year due to the impact of COVID-19 and lower wholesale sales of diamonds.

Sales results by jewellery category in the first quarter were as follows: Jewellery Collections declined 44%, Engagement Jewellery declined 49% and Designer Jewellery declined 39%.

Tiffany also reported that gross margin (gross profit as a percentage of net sales) of 55.6% was below the prior year’s 61.7%. The lower margin was largely due to (i) sales deleverage on fixed costs resulting from the effects of COVID-19 on net sales, (ii) certain overhead costs not capitalized in the period resulting from certain manufacturing locations being closed or operating at reduced capacity during the first quarter due to COVID-19 and (iii) an increase in inventory reserves. Additionally, the first quarter of 2020 included the impact of a $12.3 million charge that was recorded to fully reserve the asset related to an expected insurance recovery in respect of the bankruptcy filing of a metal refiner to which the Company entrusted precious scrap metal.

The company also noted that Tiffany T1 – the newly launched collection in rose gold and gold with diamonds – started well, with cumulative sales through the end of May matching the original projections despite a significant number of its stores being closed around the world. Tiffany said it believes it is likely that year one sales of T1 will eclipse year one sales for these two launches combined and may well exceed the sales of Tiffany T-Color, which was successfully launched last October and since then has been often out-of-stock due to overwhelming demand.

Tiffany closed two Company-operated stores in the first quarter and relocated two stores. At April 30, 2020, the Company operated 324 stores (123 in the Americas, 90 in Asia-Pacific, 58 in Japan, 48 in Europe, and five in the UAE), versus 321 stores a year ago (124 in the Americas, 89 in Asia-Pacific, 56 in Japan, 47 in Europe, and five in the UAE). Stores are being reopened across the globe as per the regulations framed by local governments.

The Tiffany CEO also said that he remains confident that the company’s best days remain ahead and added that he was “excited we will be taking that journey with LVMH by our side”.

Speaking about the merger with LVMH, Bogliolo noted, “We are pleased that there has been additional progress with the antitrust / competition process in the last few weeks; notably, we obtained clearance last week for the transaction from the Federal Antimonopoly Service of Russia and were notified in late May that the Mexican competition authority has declared our filing to be complete.”