Tiffany & Company (TIF) is well positioned to support robust sales and earnings growth by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Moreover, with nearly half of the total sales generated internationally, we believe that the company is well diversified from a regional perspective as well.
Tiffany boasts 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.
The company is focused on opening smaller stores that offer select collections of lower priced higher-margin products. Tiffany concentrates on improving sales per square foot by increasing customer traffic and converting them into buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.
Tiffany recently posted better-than-expected second-quarter 2011 results buoyed by improved demand for luxury items worldwide and consequently raised its full year outlook. The quarterly earnings of 86 cents a share surpassed the Zacks Consensus Estimate of 70 cents, and rose substantially from 55 cents earned in the prior-year quarter.
Tiffany forecasts earnings in the range of $3.65 to $3.75, reflecting a growth of 25% to 28%. Earlier, management had forecasted earnings in the range of $3.45 to $3.55 per share.
Tiffany posted net sales of $872.7 million during the quarter, up 30% from the prior-year quarter, on the heels of stellar performance of stores in 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 $787 million. Comparable-store sales climbed 28% in the quarter under review. In constant currencies net sales jumped 24% and comps grew 22%.
The jewelry market was hit hard by the recent global meltdown, which triggered a shift in focus to cheaper private label brands, but as the recession eased demand for luxury items also improved. Tiffany is well positioned to deliver robust sales and earnings growth. The company holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach.
However, due to high exposure to international markets, Tiffany remains prone to currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or settle for lower profit margins in locations outside of the U.S. A rise in price may have a direct impact on demand.
Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Given the pros and cons we prefer to have a long-term Neutral rating on the stock. However, Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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