Breakfast with Tiffany's (TIF): Competiton Sets Earnings Bar High (SIG, ZLC, More...)

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Tiffany & Co. ( TIF ) is lower ahead of their third quarter earnings report, expected out before the market opens tomorrow, November 24. The stock is down 3% in afternoon trading today.

The jeweler is expected to report an EPS of $0.37 on revs of $653.32 million. For the second quarter, 2010, Tiffany's reported an adjusted EPS of $0.55 on revs of $0.55 on revs of $668.8 million, compared to the consensus EPS of $0.53 and revs of $690.24 million. For the third quarter in 2009, the iconic brand posted an adjusted EPS of $0.33 on revs of $598.2, stronger than the consensus EPS of $0.24 and revenues of $573.75 million.

Shares gained 22.4% through Q310, to $53.00 at the end of October. The stock is up 8.7% since the end of the quarter, and 33% on the year so far.

Tiffany is going for a forward P/E of 21.8x FY10 EPS estimates, and 19.3x FY11 EPS estimates.

Data from Bloomberg has 14 analysts with a Buy rating on HPQ, 6 with a Hold, and one suggesting to Sell. The analyst price target average is $58, with a high of $65 and a low of $42.

Summary
Tiffany recently declared a $0.25 quarterly dividend, which is yielding 1.7% on an annualized basis.

Probably one of the biggest analyst changes came in September, when Goldman Sachs downgraded the common shares from Neutral to Sell. Goldman noted unfavorable risk/reward as they see slowing EPS beats and peak valuations.

Goldman is also looking for an quarterly earnings beat, seeing an EPS of $0.36. A victory would likely be attributed to "(1) strong high-end spending like other luxury retailers with international exposure and (2) strengthening [foreign exchange] rates should boost EPS and tourist spend." They note that stocks with demanding set-ups have traded lower, amid strong earnings beats. They have maintained their Sell rating, noting increasing FY11 margin pressure (increased diamond prices, with gold and silver increase 20% to 30% each), and a peak valuation (with the stock trading at 3x premium valuation compared to history and 3.5x relative to peers). Margin pressures hampering EPS growth give them little reason to expect a multiple expansion.

Deutsche Bank is looking for revs of $664 million, slightly decelerating sequentially led by tougher comps. Americas should be stable at 4% organic growth Y/Y, and a strong Other Asia segment, with 12% organic growth there. Japan is expected to be lukewarm, and Europe will also be soft. Net margin of 14% (up 290 basis points from Q309) on a gross margin of 57.5% (which will be up 270 basis points Y/Y). Deutsche has a Buy rating on the shares with a price target of $58.00.

Comparison
Signet Jewlers ( SIG ) reported a solid third quarter, with EPS beating by ten cents, and revs of $641.8 million soaring past the consensus of $618.51 million. Gross margin also improved from 26.7% to 30.2% in the quarter.

Zale ( ZLC ) also reported their first quarter earnings today, with with a narrower than expected loss of $1.30 (operating) and revs of $327 million. Gross margin also improved here, from 48.6% to 50.5%.

Comps were up 7.25 for Signet, and down 1.1% at Zale.

Tiffany & Co. is expected to release their Q310 earnings on Wednesday, November 24, 2010, at approximately 7:00am EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: SIG , TIF , ZLC

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