Earning Preview: Tiffany

Tiffany & Company (TIF), a high-end jewelry designer, manufacturer and retailer, is scheduled to report its first-quarter 2011 financial results before the bell on Thursday, May 26, 2011. The current Zacks Consensus Estimate for the quarter is 57 cents a share. For the quarter under review, revenue is $702 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2010, a Synopsis

Tiffany posted better-than-expected fourth-quarter 2010 results on the back of improved demand for luxury items worldwide. The quarterly earnings of $1.44 per share surpassed the Zacks Consensus Estimate of $1.39, and rose substantially from $1.09 earned in the prior-year quarter.

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), posted net sales of $1,101.2 million during the quarter, up 12% from the prior-year quarter, on the heels of stellar performance by new stores opened in Americas, Asia-Pacific and European regions, healthy same-store sales growth and new collections.

Total revenue also surpassed the Zacks Consensus Revenue Estimate of $1,092 million. Comparable-store sales climbed 11% in the quarter. In constant currencies, net sales jumped 11% and comps grew 9%.

Guidance

At the last earnings call, Tiffany slashed its first-quarter 2011 earnings guidance considering store closures and limited store hour operations in Japan due to the recent devastating earthquake and tsunami. Tiffany expects first quarter earnings of 57 cents a share down from 62 cents projected earlier. Management expects first quarter sales to increase 11%.

Management notified that due to its inability to provide a better insight into future sales in Japan, it did not adjust its sales and earnings guidance for fiscal 2011.

For the full year, Tiffany anticipates total net sales to rise between 12% and 14%, and forecasts earnings in the range of $3.35 to $3.45, reflecting a growth of 14% to 18%.

First-Quarter 2011 Zacks Consensus

The analysts considered by Zacks, expect Tiffany to post first-quarter 2011 earnings of 57 cents a share. The current Zacks Consensus Estimate reflects a growth of 18.8% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between 54 cents and 58 cents.

Zacks Agreement & Magnitude

Of the 17 analysts following the stock, only 2 have increased their projections and none lowered the estimate, resulting in a penny’s increase in the Zacks Consensus Estimate over the last 30 days. In the last 7 days, only one analyst revised the estimate upward, while none slashed any estimate.

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 33.3%. The average remained at positive 17.1%. This suggests that Tiffany has beaten the Zacks Consensus Estimate by an average of 17.1% in the trailing four quarters.

Tiffany to Outperform

Tiffany is well positioned to deliver robust sales and earnings growth by leveraging capital investments made in the past several years. The company holds a significant position in the world jewelry market and will benefit from its wide geographic reach. With signs of improvement in retail environment, Tiffany plans to accelerate its store expansion program. Moreover, with a healthy balance sheet, Tiffany remains committed to achieve long-term objectives of at least a 15% return on equity and a 10% return on assets. However, we remain concerned about Tiffany’s operations in Japan. The recent catastrophe in Japan may dent its sales performance by as much as 15% during first-quarter 2011.

Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Tiffany holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and correlates with our long-term view.

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