TIF
#So real quickly on the input side, what I would tell you is that we have been in a relatively favorable environment as it relates to both metal prices as well as rough and polished diamonds.
We expect that to continue through at least the 2017 time horizon.
As you know, we have a relatively long supply chain on rough and polished, so a lot of the cost visibility that we have into 2017 is basically pretty tight and borne out by things that have already come to pass, so to speak.
Then with respect to our metals, we tend to go out with forwards and lock in our metal pricing, as well.
So we're pretty confident about the gross margin plot that we spoke to in the context of our 2017 guidance.
And, <UNK>, in terms of what has changed, again as I said a moment ago and as <UNK> indicated when he arrived a few months ago, I think I'm not surprised by it but I'm certainly impressed by the number of initiatives underway, both to in terms of improved customer service, the work that's been doing around inventory productivity and efficiency in IT development.
And I think most importantly what hasn't changed is that this culture remains very strong and resilient.
And everyone at Tiffany, despite the obvious challenges and some of the changes, continues to be passionate about the brand and confident in our future.
Tiffany most certainly is one of the world's great luxury brands.
It's not broken and everyone here is simply committed more than ever to making it greater.
So I feel really good.
Hi <UNK>, it's <UNK>.
In answer to the first part of your question we are definitely moving in that direction through savings that we've already achieved in global procurement and savings that are anticipated.
We are not going to get more granular than that in terms of exactly how much it was in 2016 and what it will be in 2017, but we are definitely (technical difficulty) that target that we had specified for 2018.
And then are there opportunities for cost savings beyond that.
I'd turn it to the other <UNK> here, but I think the answer is going to be we are always going to be looking for opportunities to run the business more profitably, more efficiently.
<UNK>.
You know, I completely hear you.
And as I mentioned a little while back, the global procurement initiative is still in its early days and we are finding enormous benefit from the work that's being done in that area.
And it's now starting to grow into a lot of other areas of the business whether it's respecting store design, case lines, lighting.
We are finding enormous opportunities in all those areas and we are very confident that, as <UNK> said, we will be able to achieve the target level savings that we laid out by the indicated date, if not sooner.
But, <UNK>, I will just add, ultimately we need better sales growth.
I think that's the obvious.
And if all of these initiatives we are pursuing can generate better sales growth combined with what we are working on on the expense side that's what will give us a return to good operating margin improvement.
Well, I will just same in terms of Net-a-Porter we have been very pleased with the relationship with them.
And it's certainly, and guys feel free to chime in, but it's certainly possible that that 6% of sales could gradually move up closer to the 8% or 10% as some younger customers certainly opt more for shopping online and they will use our website more.
But we never think it is going to be a very large number because it's not the nature of our business.
The gift and accessories, luxury accessories revamp that we are underway with, that will lend itself, we think, to more e-commerce transactions by its very nature.
I think that's a critically important point.
The disappointing sales growth in e-commerce over the year I think more than any recent years more than anything else is a function of merchandising assortment and the fact that we have not had growth in lower price point jewelry and, of course, there has been an absence of gifts.
Those are, gifts are being put back, active product development in jewelry under $500 and that's going to have, that should have an important impact on our ability to grow e-commerce sales because those, that's the heart of that business.
You have already touched on a few that are critically important.
So let me just add certainly enhanced clienteling efforts that are going to be informed by our new CSR systems, somewhat operational but it will have an impact on sales, would be more intelligent, client-focused staffing programs in all of our stores.
We are working very hard to improve the store experience built around better assortments and creative visual merchandising.
Again, I think you referenced, I referenced also the Tiffany Touch customer service program.
I think so much of the effort around, in addition to obvious new product development and pace of new product development really is going to be built around enhancing all dimensions of the customer in-store experience.
And when Mike just said CSR, he meant CRM.
CRM.
Excuse me.
I'm betraying my bias.
Let me start with the last part of your question because it's the easiest.
We certainly see the Mainland, if I can use that term, Mainland China opportunity as continuing to be very, very significant.
Again, the brand is still in its early, relatively early stages of development in that market.
We have good awareness but lots of opportunity to improve awareness, lots of opportunity to optimize the store network.
So I think we are as optimistic as we've ever been about the opportunities in Greater China.
And in terms of your question about unit growth, jewelry unit volume growth in Asia-Pacific during the year part of it was just core better growth but a lot of it was due to the fact that we opened a number of new stores.
So that unit growth is not on a comp store basis, it's on a total region basis, total sales basis.
Nonetheless, we were pleased with it.
And then in terms of Hong Kong, as everyone knows Hong Kong really softened almost 2.5 years ago, started in October 2014, but finally in 2016 we started to see some improvement.
Still down but certainly getting less bad from quarter to quarter.
And at what point will it completely bottom out and start growing is anybody's guess.
But we certainly think that the worst part is probably behind us and we are getting closer to stabilization there.
We will be innovating across all categories in 2017 and 2018.
There will be newness in silver, gold, platinum, diamonds, so we are not getting get too technical in terms of how we are dividing up our newness by category or by material.
But there will certainly be newness in silver just as there will be across every other category.
Two good questions.
So with respect to the loans that we had previously made in order to be able to access supply, the good news is that has all largely passed us at this point.
We have one loan that's outstanding as a performing loan and after this quarter, and it is very de minimis, a couple million dollars, and as I said it's a performing loan.
That should be all that remains with us.
So we think that we have processed through all of that.
With respect to your other question, I don't want to evade it because it's a fair question, but I think for me there's just an abundance of opportunities there for us.
So a lot of work has been done, a lot of really good work has been done.
But that said, and despite the fact that it's an 180-year-old Company, there is still enormous opportunities going forward that we have the ability to access.
So maybe one thing I would offer it is the state of the IT systems because of the Company's rapid growth phase is an opportunity for us now and that we have the ability to stitch that together in a seamless way and that's going to give us a lot of additional capabilities going forward.
So maybe one thing is I would have thought that maybe there was a little bit more of an evolved IT infrastructure as it relates to the financial queue.
But this is something that is easily addressed and we are going to get after it in short order.
And, again, that will just become an opportunity.
Let me try to answer the first question, <UNK>, around the overall going-forward direction of product assortment, product category.
As I think everyone on the call knows, part of the magic of Tiffany over the very many years has been our ability to balance those categories and to move forward with them all simultaneously.
Critical to that has always been our ability to drive lower price point sales because of the very favorable margin profile of that category, and once again as you've heard before we've stabilized that segment.
We also feel very good about the fashion segment gold, the fashion part of the segment and once again relative to the entire mix that also has favorable gross margin profile.
So I think we are not finished certainly, but right now we are feeling relatively good about the direction of category evolution.
And, of course, as we've said now many times on the phone, we have the work in progress on watches which we are pleased with and, of course, the upcoming gift collection which also should be additive incremental to gross margin.
So on that score of product balance, relative category growth going forward, we are in a pretty good spot right now.
What I would offer is at the end of the day when you ask questions about gross margin and things, we are really focused on operating margin.
We really want to try and put together a sustainable business model to eke out about 50 basis points on the operating line each and every year.
Certainly within our product offerings certain groupings within that have higher gross margins than others, silver fashion as an example.
That said, we enjoy pretty attractive gross margins in the absolute across all our product offerings.
And I don't want us to become fixated on gross margin as it relates to product mix because at the end of the day I'm happy to sell an incremental item across any of our offerings because in the absolute they are very accretive and attractive to us.
So product mix does play into it, but I don't want to overplay the role of that in our overall business model.
And certainly we are going to continue to try to drive sales of high jewelry because, again, (technical difficulty) are not as robust as they are in other parts of the product, spectrum, on the margin they are just, wonderful, so we have no problem enjoying the success from those sorts of sales.
And, finally, the last question about the millennials and the advertising campaign, I don't know, that's always a difficult, unanswerable, difficult-to-know question.
But as some quantitative evidence, I would simply point out that, again, the fashion category is where we have enjoyed the most relative success.
So I think that speaks at least directionally of some success in appealing to millennials.
Well, certainly in terms of timing they are already at the table.
We had our first Board meeting which was a very productive, helpful meeting.
Certainly the new directors collectively they bring a wealth of, obviously, a wealth of highly relevant experience and expertise whether it's consumer products, luxury and livestock products and are busily retailing.
I don't think that as we said a couple of weeks ago we feel very, very confident in the fundamental strategic direction of the Company.
So I'm not, from my perspective not especially looking for a dramatic left or right turn in our strategy.
I think they along with the entire Board will help evolve our strategic direction and, again, we are confident that they will all contribute importantly to that.
I will just say it will be November for the introduction of the full non-jewelry luxury gift collection.
Margins are attractive.
And in terms of January trends we did say that things were slightly better in the US.
Part of that is just coming from some big transactions in the New York flagship store.
And we did already mention that we had some shift from the earlier Chinese New Year that benefited some business in Asia.
And so we are not going to get more specific than that.
So January came in a little bit better than we had expected.
And we've planned accordingly for 2017.
Yes, we are assuming at some point business in Hong Kong will stabilize without getting more specific than that.
But we said in 2016 we saw it sequentially getting better and we hope that we continue to see that in 2017.
And certainly it would be very nice at some point to talk about it flattening out but not yet.
And in terms of Chinese tourist travel and Korea, we are not going to get ---+
We'll see.
It's a little bit early to make a call on the implications of that.
But, again, we are pretty comfortable in dealing with the dynamics of tourist movement around the world.
So we will see how that develops.
We've certainly got a strong position in Korea, a strong store base.
Okay, maybe one or two more questions and we will wrap it up.
<UNK>nifer.
It's been 6% of worldwide sales for several years now.
And I think it's important to put it in perspective relative to our global luxury peers.
6% is probably about average for luxury peers and it's significantly larger than hard luxury peers.
Having said that, we do believe that, obviously, we'd like to restart growth.
But, again, I think the key, as I said before, the key to that segment or that distribution channel really is going to be about product innovation and development.
So I think I will leave it at that.
Well, let me say the obvious.
We are not about to proliferate the SKU count.
So probably more or less your suggestion that combined with the pace of new product introductions an increased pace of new product, new collection introductions, net SKU count probably will stay where it is or it might even continue to decline a bit.
But the key will be building ---+ growth is going to come from a combination of, one, new collections and if you look at the evolution of our assortment over the past 10 years far more concentrated today in important collections than it was 10 years ago in multiple smaller collections.
So we want new collections, but they have to be big and they need to be impactful.
And, of course, Tiffany T would be the model, one of the models going forward for that.
At the same time, we need to be mindful that the existing collections, Return to Tiffany and Return to Tiffany Love, they have to be renewed and we have to continue to animate and increase and inject energy into those.
So it's going to be as it always is a very careful balance making sure that we have significant new collections that marketing can drive, at the same time making sure that core collections that will always be the majority of sales continue to grow at the same time.
So it's a complex balancing act.
I think at this point I will decline to speak for Reed.
He hasn't been here that long, although he has made from my perspective tremendous progress.
But I think what you said, if I can just repeat that, because I think it is critically important for everyone on the call, in addition to product design Reed will lead the brand's artistic and design vision with respect to stores, to e-commerce, to marketing, to advertising.
We are right now I know Red's is heavily engaged in looking at new store prototypes.
So I think we are going to look to Reed for, obviously, a comprehensive, integrated brand vision.
What that brand vision is going to be, other than it's not going to be a radical left or right turn from where we are, I think it's going to be a continued evolution and fine-tuning of what we have.
But I think it probably would be premature for us to speak about that today.
I think we are going to wrap it up.
I hope this has been helpful to all of you.
And have a great day.
Thank you all.
<UNK>nifer, let's wrap it up.
