A Sparkling Quarter But Lackluster Outlook Could Tarnish Tiffany

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After years of being tight-fisted, consumers worldwide appear a bit more ready to splurge. Thanks to record breaking stock market rallies and rising home prices, many Americans are feeling more jubilant about the economy and their financial situation. Plus, scores of Europeans are shrugging off sovereign debt woes and spending.

Tiffany & Co (NYSE: TIF) recently reported a 2.5% net increase in quarterly earnings. The gain was thanks to robust overseas operations, which offset lackluster results stateside, and a declining yen.

Also giving a shine to shares were promotions tied to Tiffany’s 175th anniversary and the film The Great Gatsby, which the company designed jewelry for.

For the quarter ended April 30, Tiffany posted a $83.6 million profit, or $0.63 per share, up from $81.5 million, or $0.64 cents a share a year ago. Sales rose 9.3%, to $895.5 million, and increased 13% excluding foreign currency exchange effects. Same store sales rose 4%.

The results handily beat analysts' tempered forecasts of $0.52 per share on revenue of $855 million, and a same store sales increase of 1.5%.

The muted projections came amid Tiffany’s earlier warning that fiscal Q1 adjusted earnings could slip 15%-20% due to pressures on gross margins and higher marketing related costs.

Following the upbeat quarter, CFO Patrick McGuiness cautioned that present quarter and full year results might not be as sparking “especially in light of the underlying softness in the Americas” and the “further weakening of the yen.”

Japan was a notable bright spot in the latest quarter, Sales soared 20%, beating expectations and logging the best showing of any region. Any dip in sales from the Asian nation will indeed weigh on Tiffany’s bottom line.  But with Japanese consumers encouraged to spend, any drop off may be minimal.

A new chapter in luxury goods

In April, luxury handbag maker Coach (NYSE: COH) reported a 7% increase in overall revenue to $1.19 billion. Sales grew 7% in North America and 6% in international markets. The healthiest showing came from China, where sales soared a whopping 40%.

“We’re pleased with the progress we’re making toward our transformation to a global lifestyle brand, anchored in accessories,” said CEO Lew Frankfort.

Also pleased were investors. Shareholders bagged a 13% increase in Coach’s annual dividend to $1.35 a share. The stock also jumped to its highest level in some four months.

Coach has introduced a vast array of accessories for men and women in attempts to lure new, younger customers. Yet at the same time, it's been careful not to stray too far from its classic handbags (its cash cow), which benefit from a loyal following.

In an effort to keep up with competition, Coach is expanding.

Upstarts like Michael Kors (NYSE: KORS) and Tory Burch have muscled their way into Coach’s once dominant territory. So, Coach is growing its line, aiming to become a full lifestyle brand.

An “amplified” roll-out of footwear debuted this spring, and will be followed by an increase in men’s and women’s apparel, outerwear, watches and jewelry. Stores will also get a makeover. Analysts caution Coach runs the risk of having too many or too few sizes of shoes and clothing in stock. That hasn't been a problem with handbags and accessories. Too much in-store inventory could put the company’s legendary profitability at risk. But the change could put more than loose change in investors' purses, handbags, and pants pockets

Shares currently trade at a modest P/E of 15.74, and yield an attractive 2.32%. Plus, Coach has caught the eye of some of the best-performing hedge funds.

Logging an impressive fiscal Q4, Michael Kors continues to outperform. The Hong Kong-based handbag and accessory designer recently reported net income of $101.1 billion, or $0.50 a share. That was up from a year earlier profit of $43.6 million, or $0.22. And, results handily beat EPS estimates of $0.39

The company continues to gain market share (up 63%) throughout Europe, despite the region’s economic doldrums. Same-store sales in North America increased 35% amid growing demand for its luxury brand.

That kind of momentum might be difficult to keep up. For the full year, Michael Kors sees sales of $2.65-$2.75 billion, with same store sales up 15%-20%. EPS are anticipated to come in at $2.43-$2.47. Those figures are pretty much in line with the consensus EPS of $2.45 on stronger sales of $2.82 billion.

Shares, trading slightly below a 52-week high of $66.18, look pricey at a P/E of 37.

Tiffany is tempting, but proceed with caution

Tiffany’s muted full-year guidance has some market participants shopping elsewhere. While the company may be overly cautious in its guidance, the tepid outlook is a concern.

For the current quarter, Tiffany projects flat earnings on a single-digit sales increase. Analysts are a tad more upbeat with a 9% per share growth on a 7% sales increase.

Deutsche Bank and Jefferies Group rate Tiffany shares a "hold." J.P. Morgan and Atlantic Securities maintain a "neutral" rating on the stock.

With a beta (a measure of volatility) of 1.80, shares tend to gyrate.

Until Tiffany polishes its outlook, savvy shoppers might do better spending in its stores than investing in its stock.

Michael Kors is one of today's hottest high-end fashion brands, and that's translated into one of the best-performing stocks in retail -- since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.

Diane Alter has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. 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!

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