Earnings Preview: Tiffany & Company - Analyst Blog

Tiffany & Company (TIF), a high-end jewelry designer, manufacturer and retailer, is scheduled to report its third-quarter 2010 financial results before the bell on Wednesday, November 24, 2010. The current Zacks Consensus Estimate for the quarter is 36 cents a share. For the quarter to be reported, the Zacks Consensus Estimate for revenue is $651 million.

Second-Quarter 2010, a Synopsis

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), posted stronger-than-expected second-quarter 2010 results, buoyed by improved demand for luxury items worldwide. The quarterly earnings of 55 cents a share surpassed the Zacks Consensus Estimate of 53 cents, and rose 41% from 39 cents earned in the prior-year quarter.

The company posted net sales of $668.8 million during the quarter, up 9% from the prior-year quarter, signaling the renewed demand for jewelry in the Americas, Asia-Pacific, Japan and European regions. However, quarterly sales fell short of the Zacks Consensus Estimate of $692 million. Comparable-store sales climbed 6% in the quarter under review. In constant currencies, net sales jumped 8% and comps grew 5% during the second quarter.

Management Guidance

Tiffany at its last conference call had forecasted fiscal 2010 earnings in the range of $2.60 to $2.65 per share, up from its previous guidance range of $2.55 to $2.60. The current Zacks Consensus Estimate for fiscal 2010 is $2.62.

Management hinted that third-quarter 2010 net sales are increasing at a low double-digit percentage rate. Tiffany anticipates total net sales for fiscal 2010 to rise by 11%.

Third-Quarter 2010 Zacks Consensus

Analysts covered by Zacks, expect Tiffany to post third-quarter 2010 earnings of 36 cents a share. The current Zacks Consensus Estimate represents a year-over-year growth of 9.1%. The estimates in the current Zacks Consensus for the quarter range from a low of 33 cents to a high of 40 cents.

The current Zacks Consensus Estimate dipped by a penny over the last 7 days; with only one out of 16 analysts covering the stock revising the estimate downward. In the last 30 days, one analyst increased the estimate and one analyst lowered the estimate.

Mixed Earnings Surprise History

With respect to earnings surprises, Tiffany has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range from a negative 4.4% to a positive 43.5%. The four quarters average remained at positive 19.1%. This suggests that Tiffany has outperformed the Zacks Consensus Estimate by an average of 19.1% in the last four quarters.

Tiffany in Neutral Lane

Tiffany's sales were hit hard by the recent economic downturn, when consumers lowered their discretionary spends, but as the recession eased, demand for luxury items improved. The company is well positioned to deliver robust sales and earnings growth. The company also holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach. The company has also been concentrating more on smaller size store formats that offer select collections of lower priced higher-margin products.

Moreover, with a healthy balance sheet, Tiffany remains committed to achieving long-term objectives of at least a 15% return on equity and a 10% return on assets.

However, Tiffany'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.

Currently, we prefer to be Neutral on the stock. However, Tiffany holds the Zacks #2 Rank, which translates into a short-term ‘Buy' rating.

 
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