Wedding Season Looks Strong for These Jewelers
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The rebounding economy is helping couples looking to celebrate that joyous occasion of marriage. Consumer confidence is strong as rising home values and a strong stock market have given way to pricier engagement rings. That is boosting the profits at jewelers and lifting their outlook for the rest of the year.
The Great Gatsby of jewelers
Tiffany (NYSE: TIF) considers itself to be the world's premier jeweler. Tiffany not only sells engagement rings and diamond jewelry, but also sterling silver, china, crystal, fragrances and other luxury items. The company operates approximately 275 stores globally.
In the first quarter of this year, the company posted net earnings of $83.6 million compared to the prior year's $81.5 million. Revenues rose 9.3% to $895.5 million, beating expectations of $854.6 million. Earnings for the full year are forecast to be $3.43 to $3.53 per share compared to last year's $3.25 per share. The drop in gold and silver prices is seen as increasing demand, particularly in China where jewelry sales rose 38% year-over-year in May.
For Tiffany, the growth lies in emerging markets, particularly in Asia. This year Tiffany plans to open an additional 16 stores, including four in China. The Chinese have an appetite for name brands, and that's benefiting Tiffany. The company's tie-in with the movie The Great Gatsby also helps with marketing as Tiffany made all the jewelry pieces in the movie. After watching the movie, potential customers can go to the nearest Tiffany store and see the collection in person.
The jewelry store in every mall
Signet Jewelers (NYSE: SIG) is in practically every mall with its stores Kay Jewelers and Jared The Galleria Of Jewelry in the U.S. and Ernest Jones in the United Kingdom. Even thou Signet Jewelers doesn't have the cache of Tiffany, it is the largest jewelry retailer in the world. The focus for Signet is on the middle market.
In the first quarter of this year, same-store sales rose 8.1% compared with only a 1.2% increase in the same period last year. Earnings per share rose 18% to $1.13, which was $0.02 better than expectations. Revenues rose 10.4% to $993.6 million.
Looking forward, shareholders are being rewarded with a $350 million share repurchase program. The company also pays a $0.15 per share quarterly dividend for a yield of 0.90%. To fund these operations, the company has $263.70 million in cash on the balance sheet and only $5.70 million in debt. Operating cash flow last year was $323.80 million. With a dividend payout ratio of only 8%, shareholders in Signet can look forward to more share buybacks and dividend increases. Management is doing an excellent job managing the company's finances.
The online jewelry store
Blue Nile (NASDAQ: NILE) estimates that it sells half of all engagement rings sold online. Blue Nile is bigger than the three largest online jewelers combined. All of its high-quality diamonds are certified. After the customer chooses the diamond of choice, it can be set in their favorite design. Every order is shipped free, guaranteed and returnable within 30 days.
In the first quarter of this year, Blue Nile saw strong sales for its engagement rings. Net sales for engagement rings increased 19% to $55.3 million compared to $46.4 million in the first quarter of last year. Total net sales were $97.1 million. Earnings per share came in at $0.07.
Looking forward, management expects second quarter sales to be between $100 million and $105 million. Earnings per share are expected to be $0.13 to $0.17. For the full year, expectations are for sales of between $440 million and $470 million. Last year revenues were $414.04 million, so if expectations are met that's great for shareholders. The company has a great balance sheet with $40.52 million in cash and only $670,000 in debt.
I think the jewelry business is a great business to be in. Each company has carved out its own unique niche and has built strong brands and businesses. As the economy continues to strengthen, it makes sense that buyers will opt for a pricier engagement ring. That will benefit these three companies and boost sales and profits.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!