Tiffany Sparkles, as Sales Rise - Analyst Blog

With the economy gradually reviving, Tiffany & Company (TIF">TIF), a high-end jewelry designer, manufacturer and retailer, witnessed better-than-expected holiday sales results, as customers flocked to jewelry shops signaling improved demand for luxury items, thereby prompting management to lift its outlook.

Tiffany hinted that it witnessed robust sales of higher-end fine jewelry collections, diamond engagement rings and fashion gold jewelry during the holiday period of November and December 2010. However, the company did notify that it experienced limited sales growth in silver jewelry.

Strong Holiday Sales Results

New York based company, Tiffany, said that net sales for the two month period jumped 11% to $888.5 million, reflecting renewed demand for jewelry in the Americas, Asia-Pacific, Japan and European regions. Excluding foreign currency translation, net sales and comparable store sales climbed 10% and 8%, respectively.

By geographic segment, sales in the Americas rose 9% to $484.8 million. Excluding foreign currency translation, sales jumped 9% and comparable-store sales climbed 7%, with Americas’ branch store sales rising 8% and New York flagship store sales increasing 3%. Internet and catalog sales in the Americas grew 8%.

Tiffany’s sales in Japan ascended 11% to $142.5 million. On a constant-exchange-rate basis, total sales advanced 3% and comparable-store sales grew 2%.

Sales in the Asia-Pacific region sky-rocketed 23% to $138.9 million. Excluding foreign currency translation, sales and comparable-store sales increased 18% and 15%, respectively.

Tiffany registered a 13% increase in sales in Europe to $114.9 million. Excluding foreign currency translation, sales soared 21% driven by growth witnessed in the U.K. and most of continental Europe, whereas comparable-store sales surged 15%.

Other sales plunged 45% to $7.4 million, reflecting a fall in wholesale sales of rough diamonds to independent distributors.

Better Sales Provide Impetus to Outlook

Buoyed by stronger-than-expected sales results, management now expects Tiffany to attain record sales and earnings results for fiscal 2010. Witnessing a lift in worldwide demand for higher-priced jewelry, Tiffany hinted at achieving $3.1 billion of net sales in fiscal 2010 compared with $3.03 billion previously anticipated. The company also said that it remains on track to post earnings in the range of $2.83 to $2.88 per share, up from $2.72 to $2.77 forecasted earlier.

Following this a positive sentiment is palpable among the analysts, and we are witnessing a rise in the Zacks Consensus Estimates. The current Zacks Consensus Estimates for the fourth quarter inched up by 2 cents to $1.31 and for fiscal 2010 it went up by 9 cents to $2.87 (in the last 7 days).

New Stores Opened

By regions, Tiffany opened three stores in the U.S. (Houston, Jacksonville and Los Angeles); two stores in Asia-Pacific (China and Korea); and two stores in Europe (Spain and U.K.). All the stores were opened during the holiday period. As of December 2010, the company operated 232 stores (96 in the Americas, 56 in Japan, 51 in Asia-Pacific and 29 in Europe).

Our View on the Stock

Tiffany 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.

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.

Despite stiff competition from Signet Jewelers Limited (SIG">SIG) and Zale Corporation (ZLC">ZLC), Tiffany still retains a significant position in the world jewelry market due to its distinctive brand appeal. The company now intends to expand its distribution network by adding stores in both new and existing markets.

The company has also been consistently enhancing shareholders’ return by increasing dividends, and resumed its share repurchase program, which was suspended in the third quarter of 2008 when the economy had faltered.

Given the strong fundamentals, we maintain our Outperform rating on the stock. Moreover, Tiffany holds the Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ recommendation, and correlates with our long-term view.

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