Tiffany Shines, Brightens Outlook - Analyst Blog

Tiffany & Company ( TIF ) posted better-than-expected third-quarter 2011 results buoyed by improved demand for luxury items worldwide and consequently raised its full year outlook. The quarterly earnings of 70 cents a share surpassed the Zacks Consensus Estimate of 60 cents, and surged 52% from 46 cents earned in the prior-year quarter.

The Zacks Consensus Estimate rose by a penny over the last 30 days with only 3 out of 17 analysts covering the stock revising their estimates upward, and none lowering the same.

Let's Unveil the Picture

Tiffany, which faces stiff competition from Signet Jewelers Limited ( SIG ) and Zale Corporation ( ZLC ), posted net sales of $821.8 million during the quarter, up 21% from the prior-year quarter, on the heels of stellar performance of stores in the Americas, Asia-Pacific, Japan and European regions, healthy comparable-store sales growth and new collection launches.

Total revenue also handily beat the Zacks Consensus Estimate of $798 million. Comparable-store sales climbed 19% in the quarter under review. In constant currencies net sales jumped 17% and comps grew 16%.

By geographic segment, sales in the Americas grew 17% to $387.7 million, whereas comps rose 15% during the quarter; sales in the Asia-Pacific region surged 44% to $183.2 million and comps increased 40%; sales in Japan jumped 12% to $146.4 million and comps grew by 13%; and sales in Europe climbed 19% to $92.5 million and comps rose by 10%.

In constant currencies sales in the Americas grew 17%, whereas comps rose 15% during the quarter; sales in the Asia-Pacific region surged 40% and comps increased 36%; sales in Japan advanced 3% and comps grew by 4%; and sales in Europe climbed 15% and comps rose by 6%.

Other sales dropped 19% to $11.9 million, reflecting fall in the wholesale sales of end goods to independent distributors and lower wholesale sales of rough diamonds.

Gross profit for the quarter jumped 19% to $475.8 million; however, gross margin contracted 60 basis points to 57.9%. Operating income increased 50% to $146.2 million, whereas operating margin expanded 350 basis points to 17.8%.

Stores Update

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.

As of October 31, 2011, the company operated 243 stores (101 in the Americas, 55 in Japan, 55 in Asia-Pacific and 32 in Europe).

Other Financial Details

Tiffany repurchased about 1.3 million shares at $65.37 each, aggregating $86.3 million during the quarter. In first-nine months of fiscal 2011, the company bought back approximately 2.1 million shares at $65.97 each totaling $138.8 million.

In January 2011, Tiffany announced a new share repurchase program, overriding the previous program. The new program, which is set to expire on January 31, 2013, authorizes the company to buy back up to $400 million of shares. As of October 31, 2011, the company has approximately $253 million at its disposal for future buy backs.

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $297.4 million, and total short-term and long-term debt of $708.8 million, reflecting 31% of shareholders' equity compared with 38% in the prior-year.

Strolling Through Guidance

Tiffany, a high-end jewelry designer, manufacturer and retailer, raised its fiscal 2011 earnings guidance on the back of better-than-expected results. The company forecasts earnings in the range of $3.70 to $3.80, reflecting a growth of 26% to 30%. For the fourth quarter, management projects earnings between $1.48 and $1.58 per share.

The current Zacks Consensus Estimate for fiscal 2011 is $3.75 per share that dovetails with management's guidance range. The current Zacks Consensus Estimate for the fourth quarter is $1.63 that lies above forecasted range.

Following a revision in the outlook, we could witness a correction in the Zacks Consensus Estimates in the coming days with analysts tweaking their estimates to better align with earnings outlook. Earlier, management had forecasted fiscal 2011 earnings in the range of $3.65 to $3.75 per share.

Tiffany now 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 meekly.

Management anticipates capital expenditures of approximately $250 million for fiscal 2011.

Let's Conclude

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 the total sales internationally. 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 product, which in turn boosts store productivity. Tiffany concentrates on improving sales per square foot through an increase in 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. However, we maintain our long-term 'Outperform' recommendation on Tiffany.

SIGNET GRP PLC ( SIG ): Free Stock Analysis Report

TIFFANY & CO ( TIF ): Free Stock Analysis Report

ZALE CORP NEW ( ZLC ): Free Stock Analysis Report

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

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

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