Tiffany & Company
) seems to be in an unfavorable position as the soft economic
environment continues to take its toll on the performance of this
designer, manufacturer and retailer of high-end jewelry, as evident
from its third consecutive quarter of lower-than-expected
bottom-line results and trimmed fiscal 2012 outlook. The big
question that remains: "Is Tiffany losing its sparkle?"
We are dealing with the issue systematically, as we try to
portray a concrete picture of the proceedings at Tiffany, starting
with its soft sales growth, the bottom-line miss, truncated
guidance, revision in the Zacks Estimates and -- last but not least
-- the initiatives undertaken. However, the company's unchanged
long-term target of a 10% to 12% sales increase and annual growth
of at least 15% in earnings keeps hope alive.
Soft Sales Trend Continues
Tiffany's global net sales for the second quarter of 2012 rose
2%, following an increase of 8% in the first quarter of 2012 as
well as in the fourth quarter of 2011. From this perspective, it
appears that sales growth rate has fallen to the low-single digits
from the high-single digit range.
But if we look back at the sales growth of the first three
quarters of 2011, the story is much clearer. Total sales in the
third, second and first quarters of 2011 enjoyed double-digit
growth, increasing 21%, 30% and 20%, respectively.
Missing on Bottom Line
Tiffany continues to disappoint with its bottom line results.
The company's second-quarter 2012 bottom-line performance mirrored
the results of the first quarter of 2012 and fourth quarter of
Second-quarter earnings of 72 cents a share missed the Zacks
Consensus Estimate by a couple of cents, and dropped sharply from
86 cents earned in the prior-year quarter. The disappointing result
was a reflection of the dismal performance in the Americas and
Europe region due to soft demand for jewelry.
The company's first-quarter 2012 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. With regards to the
fourth-quarter 2011 performance, 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.
The earnings lagged the Zacks Consensus Estimates by 2.7% and
7.3% in the second and first quarters of 2012, respectively, and by
2.1% in the fourth quarter of 2011. However, in the third, second
and first quarters of 2011, the company beat the Zacks Consensus
Estimates by 16.7%, 22.9% and 17.5%, respectively.
Trimmed Guidance Mirrors Losing Streak
Tiffany lowered its guidance for the second time in fiscal 2012.
The company now projects earnings in the range of $3.55 to $3.70
per share, down from $3.70 to $3.80 forecasted earlier. Previously,
management had lowered earnings guidance to a range of $3.70 to
$3.80 per share, down from $3.95 to $4.05.
If we closely scrutinize the earnings forecast, we observe that
it stands in a feeble position when compared with the company's
long-term growth objective of at least 15%.
On the other hand, Tiffany now expects total net sales growth of
6% to 7% for fiscal 2012, down from 7% to 8% increase predicted
previously. The guidance shows no proximity with the company's
long-term sales growth goal of 10% to 12%. Earlier, management had
projected 7% to 8% growth in total net sales for fiscal 2012, down
Downhill Estimate Revision
Following Tiffany's second-quarter 2012 results, the Zacks
Consensus Estimates have been portraying a downward trend.
The Zacks Consensus Estimate for the third quarter of 2012
dropped by 3 cents to 63 cents a share in the last 30 days. For the
fourth quarter, the Estimate fell by a penny to $1.60 per share.
For both fiscal 2012 and 2013, the Zacks Consensus Estimates slid 6
cents to $3.59 and $4.12, respectively, in the last 30 days.
Tiffany 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 internationally.
We believe once the predicament in the economy bottoms out, Tiffany
will perk up and get back to its healthy sales and earnings
The company is focused on opening smaller stores that offer
select collections of lower-priced, higher-margin 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 company intends to expand its distribution network by adding
stores in both new and existing markets. On the international
front, the company is now concentrating on expanding business in
Middle East, Russia, Brazil and India. Tiffany now plans to add 28
stores in fiscal 2012 with 13 in the Americas, 8 in Asia-Pacific, 2
in Europe and 5 in the United Arab Emirates (already commenced
operation in the region).
We will have to wait and watch as to how the story unfolds, as
the year progresses. Currently, we maintain our long-term Neutral
recommendation on the stock. Moreover, Tiffany, which faces stiff
Signet Jewelers Limited
), holds a Zacks #3 Rank that translates into a short-term Hold
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