Tiffany Might Win With Watches
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Upon returning from East Hampton this past weekend, I couldn't help but reflect on the appearance that the locals, tourists and weekenders alike appear to have missed the memo about a queasy economy and sustained high unemployment .
A couple of days earlier, as I did some window shopping along Main Avenue in this affluent town where a flurry of high-end, specialty shops are perched, it was impossible to ignore the signs. Only the finest European SUV's and cars lined the streets; lines of people formed out the door at places like Starbucks; and the bustle of paper shopping bags from designer shops like Tiffany & Co. (NYSE: TIF) and Shoe Inn, which counts Michael Kors (NYSE: KORS) among the designer brands on its shelves, was more reminiscent of the holidays than the humid August morning that it was.
And then there's..
On the eve of second quarter earnings results from specialty jeweler Tiffany, analysts do not appear to be losing any sleep awaiting the outcome. That's because expectations are not that high (despite shopping activity on the Hampton's Main Street.) Take David Wu, an analyst at retail phenom Dana Telsey's advisory firm -- he is predicting EPS of 72 cents per share, two cents below First Call's consensus estimate, all according to Bloomberg. In fact, this is where Tiffany's 2Q results came in.
Tiffany slashed its earnings and revenue expectations for the remainder of the year blaming weakness in some of its key markets stemming from Europe and New York in addition to global economic uncertainty and choppy currencies.
To be fair, Tiffany is up against some tough comps in the second quarter, which Michael J. Kowalski, Tiffany's chairman and CEO, noted in the company's earnings release.
Wu was expecting the second half of the year should prove smoother sailing, but Tiffany seems less optimistic about the near-term future. More, it is unclear whether or not a broad-based recovery in jewelry sales is underway.
In its favor is Tiffany's ability to attract entry-level shoppers with high-end aspirations, a characteristic that according to Wu outshines the retailer's rivals.
There are a couple of underpinnings that are not supporting the blue-box retailer. Tiffany has notable exposure to Asia including China, a region in which the sales tide is turning to watch sales, a product line that unlike its competitors the high-end jeweler lacks any presence. Worse, sales have been trending away from Asia and toward Europe amid the latter's weaker currency, which is damaging the gifting market in China and still not helping Tiffany.
While Tiffany may not be able to single-handedly save a continent's economy it seems reasonable that the company would expand into watches, which are the sector's gem at the moment: "We are still seeing alot of strength out of watches," said Wu.
It must be tough for Tiffany to sit on the sidelines and see the kind of success that retailer Fossil (NASDAQ: FOSL) can experience thanks in large part to its licensing agreement to sell watches and accessories designed by Michael Kors. Fossil's exposure to China is miniscule, but according to Wu the long term prospects in that region are attractive for what is likely to become a ballooning watches segment. In the end, that could bolster both fundamental and top line growth for this volatile retail stock. Indeed, Telsey Advisory's Wu expects double-digit sales growth from Fossil in coming years.
By the way, either someone please alert the East End that the economy is threatening to revisit recession levels or the rest of the world needs to begin drinking the Hamptons' water.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Fossil and Tiffany & Co. Motley Fool newsletter services recommend Fossil. 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.If you have questions about this post or the Fool’s blog network, click here for information.