A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential for further upside. Here we discuss one such stock, Tiffany & Co. TIF with expected long-term earnings per share growth rate of 10.8% and a VGM Score of B. So far this year, the company’s shares have increased 15.6% compared with the industry’s decline of 2.6%.
Driving Factors
Tiffany holds a significant position in the world jewelry market owing to its distinctive brand appeal. The company is well positioned to augment both its top and bottom-line performance in the long run by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. It is also looking at other revenue generating avenues, and this includes expansion into watch business.
With nearly half of the total sales generated internationally, we believe that the company is well diversified from a regional perspective as well. Tiffany is also focusing on enhancing omni-channel platform. Previously, it had notified that its long-term objective is to attain ROA of at least 10% and ROE of at least 15%.
The company is focused on opening smaller stores that offer selected collections of lower priced higher-margin product, 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. Management anticipates gross retail square footage growth of 2% in fiscal 2017.
The company delivered fifth straight quarter of positive earnings surprise, when it posted second-quarter fiscal 2017 results. Net sales also grew and beat the Zacks consensus mark. The company registered sturdy wholesale sales of diamonds, higher wholesale sales in the Asia-Pacific region and robust e-commerce sales growth. Management continues to project mid-single-digit-percentage increase in earnings per share and low-single digit percentage growth in net sales in fiscal 2017.
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Hurdles to Overcome
Management expects SG&A expenses for the fiscal year to increase at a marginally higher rate than sales on account of sustained investment in new signature women's fragrance, launch of new luxury accessories offerings and additional jewelry SKUs. This may strain margins to an extent.
We also note that the company's comparable-store sales have been struggling for quite some time now. In the first and second quarters of fiscal 2017, comps have declined 3% and 2%, respectively. Further, a mature domestic market, cautious consumer spending, foreign currency headwinds and stiff competition from Signet Jewelers Limited SIG continue to pose concerns.
Taking the pros and cons into consideration, the stock currently carries a Zacks Rank #3 (Hold).
2 Retail Stocks Hogging the Limelight
If you are interested in the retail space you can consider stocks such as Abercrombie & Fitch Co. ANF and Zumiez Inc. ZUMZ both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Abercrombie & Fitch has a long-term earnings growth rate of 14%.
Zumiez delivered an average positive earnings surprise of 27.1% in the trailing four quarters and has a long-term earnings growth rate of 15%.
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