Tiffany & Company
) lost a little shine due to sluggish sales witnessed in the
Eastern U.S. and Europe that highlighted its vulnerability to the
turbulent and dwindling economy. Coming to the facts, we observe
that sales in Europe climbed 19% during the third quarter of 2011,
following an increase of 32% in the second quarter, whereas sales
in the Americas grew 17% compared with 25% in the previous
We also noted that Tiffany, a high-end jewelry designer,
manufacturer and retailer, raised its fiscal 2011 earnings
projection on the back of better-than-expected third quarter
results but reiterated its top-line guidance. The unchanged revenue
guidance was enough to dash the hope of investors, who were looking
for some sales pick-up this holiday season.
Further, a lower-than-expected earnings forecast for the
fourth-quarter of 2011, which comprises the holiday season, also
took away some sheen from the stock that fell approximately 9%
since November 28.
All these compelled us to revisit our long-term view. We
recently downgraded our recommendation on Tiffany to Neutral with a
price target of $71.00. Earlier, we had an Outperform rating on the
stock. Our approach on the company is bit cautionary given an
unpredictable economic environment.
What the Company Guided?
Tiffany, which faces stiff competition from
Signet Jewelers Limited
), projected earnings between $3.70 and $3.80, reflecting a growth
of 26% to 30%. Earlier, the company had guided earnings in the
range of $3.65 to $3.75.
For the fourth quarter, management projects earnings between
$1.48 and $1.58 per share.
Following the company's projection, the analysts covering the
stock have tweaked their estimates to better align with
management's earnings outlook. The current Zacks Consensus Estimate
for fiscal 2011 is $3.76 per share that reflects an increase of a
penny in the last 7 days. For the fourth quarter, the Zacks
Consensus Estimate dropped by 7 cents in the last 7 days to the
current level of $1.57.
Where the Spark Lay…
Tiffany posted better-than-expected third-quarter 2011 results
buoyed by improved demand for luxury items worldwide as the
wealthier consumer continues to shop despite lingering economic
woes. The quarterly earnings of 70 cents a share surpassed the
Zacks Consensus Estimate of 60 cents, and increased 52% from 46
cents earned in the prior-year quarter.
Tiffany posted net sales of $821.8 million during the quarter,
up 21% from the prior-year quarter, and handily beat the Zacks
Consensus Estimate of $798 million. Comparable-store sales climbed
19% in the quarter under review.
The jewelry company has been outperforming the Zacks Consensus
Estimate consistently. With respect to earnings surprises, Tiffany
has topped the Zacks Consensus Estimate over the last four
quarters, including the recent one, in the range of 3.6% to 22.9%.
The average remained at 15.2%. This suggests that Tiffany has
beaten the Zacks Consensus Estimate by an average of 15.2% in the
trailing four quarters.
Undoubtedly, the choppy macroeconomic environment poses a major
threat for Tiffany, but it still continues to keep its head high.
Tiffany anticipates a high-teens percentage rise in total net sales
for fiscal 2011. Management expects a high-teens percentage
increase in sales in the Americas, at least a 35% rise in the
Asia-Pacific, a minimum increase of 20% in European regions, and at
least a 10% jump in Japan. Other sales are projected to fall
Regained Consumer Confidence
Thanksgiving, Black Friday and Cyber Monday all will have their
say; regained consumer confidence looked far stronger than the
prior-year period. It seems that consumers were saving up for the
holiday season, and went from shop to shop to grab the best
According to the data released by National Retail Federation,
holiday weekend sales surged 16.4% to $52.4 billion. The survey
also revealed that as many as 226 million bargain hunters visited
stores and surfed the Internet over Black Friday weekend compared
with 212 million in the prior year.
Tiffany holds a significant position in the world jewelry market
due to its distinctive brand appeal. The company intends to expand
its distribution network by adding stores in both new and existing
markets. Tiffany now plans to add net 14 stores in fiscal 2011 with
6 in the Americas, 3 in Europe and 6 in Asia-Pacific. The company
also plans to close one location in Japan.
Tiffany has been consistently enhancing shareholder returns
through share repurchases and dividends. The company recently
increased its quarterly dividend by 16%. This is the ninth time the
company has hiked its dividend in as many years. In January 2011,
the company announced a new share repurchase program of $400
million, which is set to expire on January 31, 2013.
The jewelry market was hit hard by the recent global meltdown,
which resulted in a shift in focus to cheaper private label brands,
but as the recession eased demand for luxury items also improved.
The company holds a significant position in the world jewelry
market and is poised to benefit from its increased geographic
reach. The company generates nearly half of its total sales
We believe that Tiffany is well positioned to deliver robust
sales and earnings growth.
The company is focused on opening smaller stores that offer
selected collections of lower-priced, higher-margined products,
which in turn boost store productivity. Tiffany concentrates on
improving sales per square foot through higher customer traffic and
converting them into potential buyers by targeted advertising,
ongoing sales training and customer-oriented initiatives.
The brand appeal, strategic initiatives and a brighter outlook
bolster a sense of confidence in the stock even amid a dwindling
economy. But we have to wait and watch as to how the cautious
consumers react to the sparkles of Tiffany in the upcoming holiday
season. As of now, we have a short-term Hold recommendation on the
stock, which is well defined through our Zacks #3 Rank.
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