Earnings Preview: Tiffany

Zacks Investment Research
updated | Zacks.com

Tiffany & Company (NYSE:TIF), a high-end jewelry designer, manufacturer and retailer, is slated to report its fourth-quarter 2011 financial results before the opening bell on Tuesday, March 20. The current Zacks Consensus Estimate for the quarter stands at $1.41 per share, representing an estimated year-over-year decrease of about 2%. Revenue, as per the Zacks Consensus Estimate, is $1,185 million.

Third Quarter Overview

Tiffany’s quarterly earnings of 70 cents a share surpassed the Zacks Consensus Estimate of 60 cents, and surged 52% from 46 cents a share earned in the prior-year quarter.

Tiffany, which faces stiff competition from Signet Jewelers Limited (NYSE:SIG) and Zale Corporation (NYSE: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, Japanand European regions, healthy comparable-store sales growth and new collection launches. Total revenue also handily beat the Zacks Consensus Estimate of $798 million.

Guidance Went Down

Following its dismal holiday sales performance, management trimmed the company’s earnings outlook. Tiffany now expects fiscal 2011 earnings between $3.60 and $3.65 per share, reflecting an annualized growth of 23% to 25%. Earlier, the company had guided earnings in the range of $3.70 to $3.80 per share.

Earnings Estimate Revisions- Overview

Estimates inched down for Tiffany following its truncated outlook. A closer look at the holiday sales numbers suggests that the consumers in the U.S. and European markets remained cautious to the sparkles of Tiffany. However, markets in the Asia-Pacific and Japanposted strong sales.

Agreement of Estimate Revisions

We do not see any major estimate revisions at this point. However, there is a slight downside trend in the estimates for the upcoming quarter, as among the 17 analysts covering the stock, 1 revised the estimates downward in the last 30 days, while none moved in the opposite direction. Similar trend in estimate revisions is witnessed for fiscal 2011.

Magnitude of Estimate Revisions

Following the estimate revisions, the Zacks Consensus Estimate for the quarter inched down by a couple of cents over the last 30 days.

The downward revisions support the view that revenue growth will remain soft in the upcoming quarter as there is lack of near-term catalysts to drive sales. Further, management stated that after posting better-than-expected results for three consecutive quarters in fiscal 2011, sales of luxury jewelry suddenly softened in the U.S. and Europe, raising concern whether the company will be able to sustain its trend of outperforming expectations in the fourth quarter.

Positive Earnings Surprise History

With respect to earnings surprises, Tiffany has topped the Zacks Consensus Estimate over the last four quarters 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 the same magnitude in the trailing four quarters.

Our Take

The company’s curtailed forecast and dismal holiday sales ring an alarming bell for the luxury sector, which has managed to remain resilient amid the economic turmoil. But for now, it is showing signs of sluggishness with luxury shoppers restraining themselves from purchasing high-end jewelry owing to the persistent economic woes. Moreover, the European debt-crisis that forced the members of the cross-Atlantic territory opt for austerity measures have tempered the demand from wealthy consumers.

Tiffany holds a significant position in the world jewelry market due to its distinctive brand appeal and is poised to benefit from its increased geographic reach in the long run. The company intends to expand its distribution network by adding stores in both new and existing markets.

Currently, we maintain our long-term ‘Neutral’ recommendation on the stock. However, considering the near-term headwinds, Tiffany holds Zacks #4 Rank, which translates into short-term ‘Sell’ rating.

 
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