Within Tiffany’s results, it really reflects a company that has defended their brands. They do not mark down their products.” — CNBC’s The Call 11/25/2009
According to Tiffany & Co. (TIF), high-end retail is on the road back after a long and tough slog during the recession. The ritzy jeweler reported both sales and earnings came in ahead of analysts’ estimates. The company earned $.33 per share on $598 million in sales compared to estimates of EPS of 24 cents on $575 million. Sales declined by 3% year-over-year but were of course ahead of expectations. In the upcoming fourth quarter, analysts are counting on a 6% increase from last year’s holiday sales, but remember this comparison is to an extremely weak holiday shopping season last year.
In addition to the impressive results of the third quarter, Tiffany’s management raised estimates for full year earnings to the range of $1.88 to $1.98. This is substantially improved from the former guidance of $1.65 to $1.75, and suggests that the company is optimistic about their prospects this holiday. Furthermore, this is the second lift to guidance in as many quarters as the company upped earnings guidance from $1.50 to $1.60 after the second quarter. It is not difficult to see the improving trend as the midpoint of guidance was lifted 9.6% then and today by 13.5%.
As with so many other firms, Tiffany’s improved earnings are thanks in large part to cost cutting efforts and inventory controls. However, sales overseas are also growing ahead of expectations thanks to a weakened dollar. Declines in the U.S. market has moderated to an estimated yearly decline in the low teens as well, perhaps because the high-end consumer is less cash strapped than those just scrapping buy and worried about their monthly mortgage and bill payments. Tiffany’s has also rejected discounting that other brands have utilized to acclimate to slowing consumer spending, and this has likely protected the cache associated with the little blue box.
It appears that at least the worst is behind Tiffany’s, but that is not news to investors as they have bid up the price of Tiffany stock 65% in the last six months. So, even as the fundamentals are steadily improving, we have given the stock a Fairly Valued rating as the stock has today crossed our rationally expected price of $42. The stock’s current valuation metrics of price-to-sales and price-to-cash earnings are within the historically normal ranges, so we are unlikely to upgrade or downgrade the stock in the coming weeks.