We recently upgraded our long-term recommendation on Tiffany & Company (TIF), a high-end jewelry designer, manufacturer and retailer, to Outperform with a price target of $84.00. Earlier, we had a Neutral rating on the stock.
Better-than-expected first-quarter 2011 results buoyed by improved demand for luxury items worldwide, increased outlook and much better performance at Japan than expected inspired us to revise our recommendation.
The quarterly earnings of 67 cents a share surpassed the Zacks Consensus Estimate of 57 cents, and rose substantially from 48 cents earned in the prior-year quarter. Tiffany raised its fiscal 2011 earnings guidance on the back of stronger-than-expected results. The company forecasts earnings in the range of $3.45 to $3.55, reflecting a growth of 18% to 21%. Earlier, management had forecast earnings in the range of $3.35 to $3.45 per share.
Tiffany is well positioned to support robust sales and earnings growth by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Moreover, with nearly half of total sales being generated internationally, we believe that the company is well diversified from a regional perspective as well.
Tiffany posted net sales of $761 million during the quarter, reflecting a 20% improvement from the prior-year quarter on the heels of stellar performance across stores in Americas, Asia-Pacific and European regions, healthy same-store sales growth and new collection launches. Total revenue also handily beat the Zacks Consensus Estimate of $703 million.
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.
By geographic segments, sales in the Americas grew 19% to $374.7 million, whereas comps rose 17% during the quarter; sales in the Asia-Pacific region surged 37% to $167.2 million and comps increased 31%; and sales in Europe climbed 25% to $85.6 million and comps rose 20%.
Sales in Japan advanced 7% to $123.4 million, and comps grew by 8%. In constant currencies, sales in Japan dropped 3%. Japan delivered much better results than management had expected. Earlier, Tiffany had hinted that the catastrophe in Japan may dent its sales performance by as much as 15% during first-quarter 2011. Japan had contributed 18% to total net sales during fiscal 2010.
Tiffany now anticipates a mid-teens percentage rise in net sales for fiscal 2011. Management expects a mid-teens percentage increase in sales in the Americas, and a mid-twenties percentage rise in the Asia-Pacific and European regions. However, management forecasts sales in Japan to decline modestly. Other sales are projected to soar as high as 25%.
Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), holds a significant position in the world jewelry market due to its distinctive brand appeal. The company intends to expand its distribution network by adding stores in both new and existing markets.
The company is focused on opening smaller stores that offer select collections of lower priced higher-margin products, which in turn boosts store productivity. Tiffany concentrates on improving sales per square foot through an increase in customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.
Tiffany currently holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ recommendation, and correlates with our long-term view.
SIGNET GRP PLC (SIG): Free Stock Analysis Report
TIFFANY & CO (TIF): Free Stock Analysis Report
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