Earnings Scorecard: Tiffany - Analyst Blog

Tiffany & Company (TIF), a high-end jewelry designer, manufacturer and retailer, has posted stronger-than-expected third-quarter 2010 results buoyed by improved demand for luxury items worldwide.

Street analysts had nearly a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts' estimate revisions and the Zacks Rank as well as the long-term recommendation for the stock.

Earnings Report Review

Tiffany's quarterly earnings of 46 cents a share surpassed the Zacks Consensus Estimate of 36 cents, and rose 39% from 33 cents earned in the prior-year quarter.

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), posted net sales of $681.7 million during the quarter, up 14% from the prior-year quarter, signaling a renewed demand for jewelry in the Americas, Asia-Pacific, Japan and Europe.

Total revenue also surpassed the Zacks Consensus Revenue Estimate of $651 million. Comparable-store sales climbed 9% in the quarter under review. In constant currencies net sales jumped 12% and comps grew 7%.

The third quarter results have made Tiffany more confident. Management lifted its fiscal year 2010 earnings forecast to a range of $2.72 to $2.77 per share from its previous guidance range of $2.60 to $2.65. The company now anticipates total net sales for fiscal 2010 to rise by 12%, up from 11% anticipated earlier.

(Read our full coverage on this earnings report: Tiffany Shines, Lifts Outlook)

Agreement of Estimate Revisions

Clearly, a positive sentiment is palpable among analysts, who remain optimistic about Tiffany's performance. Following the earnings release, the Zacks Consensus Estimate has been rising with analysts remaining bullish on the stock, as the company raised its guidance.

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. Tiffany is well positioned to deliver robust sales and earnings growth, as it commands pricing power and has the ability to navigate through the challenging environment, while protecting its margins.

The Zacks Consensus Estimates have been rising with analysts raising their estimates. In the last 7 days, 8 out of 15 analysts covering the stock increased their estimates with none lowering their estimates for fourth-quarter 2010. However, for first-quarter 2011, only 1 analyst changed the estimate in the upward direction, whereas 2 analysts lowered their projections in the last 7 days.

For fiscal 2010 and 2011, 7 analysts and 8 analysts, respectively, have increased their estimates in the last 7 days. Only 1 analyst lowered the estimate for fiscal 2010 in the last 7 days.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate for fiscal 2010 rose by 12 cents to $2.74, and for fiscal 2011 the Estimate climbed 11 cents to $3.08. In the last 30 days, the Estimate jumped by 13 cents for fiscal 2010 and 2011.           

For fourth-quarter 2010, Zacks Consensus Estimate increased by 4 cents to $1.28, and for first-quarter 2011 it dropped by a penny to 53 cents a share in the last 7 days. However, in the last 30 days, the Estimates increased by 5 cents for fourth-quarter 2010 and dropped by a cent for first-quarter 2011.

The estimates in the current Zacks Consensus for fourth-quarter 2010 range from a low of $1.21 to a high of $1.31. For fiscal 2010, the estimates range from $2.60 to $2.79.

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.

These support the Zacks #2 Rank on Tiffany, which translates into a short-term ‘Buy' rating.

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.

Given the pros and cons, we prefer to be Neutral on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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