Does Tiffany Have Any Sparkle Left?

By Ryan Guenette - September 6, 2012 | Tickers: NILE, DDC, SIG, TIF, ZLC | 0 Comments

• Email
• Print

On August 27^th, 2012, Tiffany & Company (NYSE: TIF) reported quarterly results to Wall Street. Net income rose 2%, year over year, to $91.8 million, or $0.72 per share, displaying a slowing of its core American and European markets, yet a drastic pickup in the Japanese market. Sales rose 1.6%, year over year, to $887 million. A key to the report was same-store sales only falling 1%, where many analysts were expecting a much more drastic figure. The company lowered its annual profit and sales growth outlook, and announced it was opening 28 new stores, more than previously expected. Tiffany rallied 7.20% the next day because of numerous analysts that were anticipating much worse. Tiffany observed a very lackluster customer base, yet did state that they saw the economic picture leisurely brightening.

Over the past year Tiffany has declined 9.13%, underperforming the S&P 500 by a wide margin, as during the same time period the S&P 500 rallied 19.85%. So does Tiffany have any sparkle left, or is the company lackluster?

Diamond Strength Fundamentals

In 2002, Tiffany & Company reported earnings per share of $1.20. In 2012, the average analyst consensus believes the company will derive $3.40 per share from its business operations. This represents a 183.33% increase in earnings over a decade running through some of the most volatile economic markets in history, such as the financial collapse of 2008. Based on these statistics, Tiffany & Company’s compound annual growth rate (CAGR) is 10.98%, a fast-paced yet sustainable rate that Tiffany is very likely to continue into the future. Another advantageous aspect of the company is its steadfast dividend. Currently, Tiffany pays out an annual dividend of $1.28, which at the current price, puts the dividend as yielding 2.04%. This is up from 2011’s annual dividend of $1.16, and is further expected to expand into the future. By 2015, the street projects the dividend reaching $1.47, which at current prices, would put the dividend as yielding 2.34%. From this we can see Tiffany’s financial resolve through rough economic times, annualized double digit growth rate stretching through the last decade, and decently sized dividend.

The chart below displays Tiffany & Company’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Prospects & Future

When the financial disaster of 2008 struck, numerous families and individuals lost their jobs, wealth, and financial security. When people are struggling to scrap together money that they once flung around carelessly, they are not going to purchase luxury items from Tiffany. Tiffany is an iconic brand known for its high price tag and superior quality. As the economic picture improves, more and more people will have the money to purchase the type of items Tiffany sells.

Additionally, there is a shocking realization today that the middle class is vanishing. Much of the middle class or lower class citizens have moved up a tier, and have become more likely to purchase luxury items. The chart below displays this incredible shift, and is injusted for inflation.

Finally, one last trait that is found in Tiffany’s that appears to be an extremely encouraging sign is the level of institutional ownership. 90.00% of the shares outstanding are held by institutional investors, such as pension plans. This represents that investors believe in Tiffany’s long term story, and are willing to hold it through times of volatility to reap the awards of times of economic prosperity.

Who’s Diamond Ring Shines the Brightest?

Compared to some of Tiffany & Company’s most prominent competitors, such as: Blue Nile Incorporated (NASDAQ: NILE), Zale Corporation (NYSE: ZLC), Signet Jewelers Limited (NYSE: SIG), and Harry Winston Diamond Corporation (NYSE: HWD), Tiffany compares relatively favorably.

In terms of growth, Harry Winston is the industry leader, while Blue Nile is the industry laggard. Tiffany and Signet are the only companies in the industry to pay out dividends, with Tiffany possessing the largest dividend and Signet possessing the fastest growing dividend. In the fundamental ratio comparison, Blue Nile appears to be trading at a huge premium to its peers, while Signet is the most reasonably priced. When growth is taken into account, Harry Winston is trading at a hefty premium, while Signet is the industry bargain. In the net profit margin comparison, Zale loses money, while Tiffany tops the industry with its double digit profit margin.

The Foolish Bottom Line

The Tiffany earnings report was a case of “not as bad as expected” and this is why Tiffany rallied. Their financial resolution has proved incredible throughout the past decade, and the company possesses an annualized double digit growth rate through this period. The company’s dividend is decently sized, and is growing at a sustainable rate. Tiffany should benefit from the recovering economy, as well as the shift by the majority of the population is making to move up in the social hierarchy. Additionally, long-terms investors have extreme confidence in Tiffany’s long-term story. The foolish bottom line is that Tiffany & Company is a tremendous way to play the rebounding global economy, and should prosper in times of plenty, but can sustain itself through times of despair.       

• Email
• Print
• Feedback