Tiffany & Company
) disappointing first-quarter 2012 results and dismal fiscal 2012
outlook compelled us to take a bearish stance on the stock.
Consequently, we downgraded our recommendation to Underperform with
a target price of $48.00. Earlier, we had a Neutral view on the
Analyzing Quarterly Results
Tiffany posted lower-than-expected first-quarter results. The
quarterly earnings of 64 cents a share missed the Zacks Consensus
Estimate of 69 cents, and dropped from 67 cents earned in the
prior-year quarter. The soft bottom-line reflected dismal
performance in the Americas region due to lower demand for
Despite registering a growth in the top line, the company
witnessed a drop in the bottom line due to a 10% rise in the cost
of sales and an 11% increase in selling, general and administrative
This was the second consecutive quarter that Tiffany missed on
the bottom line. Previously, fourth-quarter 2011 earnings of $1.39
per share fell short of the Zacks Consensus Estimate of $1.42, and
dropped from $1.44 earned in the prior-year quarter.
Tiffany, which faces stiff competition from
Signet Jewelers Limited
), stated that global net sales for the first quarter of 2012 rose
8%, following a similar percentage increase in the fourth quarter
From this perspective, it appears that nothing is wrong with the
company, as the sales growth rate remains equivalent. But, if we
look back at the sales growth in the first three quarters of 2011,
the story would be clearer. We observed that total sales in the
third, second and first quarters of 2011 enjoyed double-digit
growth, increasing 21%, 30% and 20%, respectively, before the
growth fell to a high single
Given the weaker-than-expected results and sluggish economic
recovery in most of the countries, management trimmed its fiscal
The high-end jewelry designer, manufacturer and retailer now
projects earnings in the range of $3.70 to $3.80 per share, down
from $3.95 to $4.05 forecasted earlier, reflecting an increase of
3% to 6%. Earlier, the company had projected earnings growth of 10%
If we closely scrutinize the earnings growth forecast, we
observe that it stands nowhere when compared with the company's
long-term objective of at least 15% growth, and represents a much
lower growth rate when compared with an increase of 23%, registered
in fiscal 2011.
On the other hand, Tiffany now anticipates 7% to 8% growth in
total net sales for fiscal 2012, down from 10% predicted
previously, reflecting a soft macroeconomic environment and tough
year-over-year comparison in the second and third quarters of 2012.
The guidance shows slight proximity to the company's long-term
sales growth goal of 10% to 12%.
Estimate Revision Showing Downtrend
Following Tiffany's first-quarter 2012 results, the Zacks
Consensus Estimates have been portraying a downward trend.
The Zacks Consensus Estimate for the second quarter of 2012
dropped by 7 cents to 78 cents a share in the last 30 days. For the
third quarter, the Estimate fell 8 cents to 67 cents a share. For
fiscal 2012 and 2013, the Zacks Consensus Estimates also fell 25
cents and 32 cents to $3.73 and $4.27, respectively, in the last 30
The above analysis supports our unbiased view, and advocates our
bearish opinion on the stock, which is well defined through our
Zacks #5 Rank that translates into a short-term "Strong Sell"
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