Tiffany’s fourth quarter 2009 results

I’ve just finishing listening to the TIF fourth quarter 2009 conference call.  There are a number of reasons for paying particular attention to what this company has to say, apart from possible interest in it as an investment:

–TIF has been a brilliantly successful marketer over many years, so it clearly has its finger on the pulse of its customers,

–TIF appeals to a broad array of consumers and sells the ultimate discretionary item, jewelry, so it is a good bellwether for consumer sentiment, and

–it’s an increasingly global company, with significant operations in the Pacific (35% of sales) and Europe (12%).

Here’s what the company had to say:

about the economy

There’s no “new frugality” or “new normal.” Consumers are behaving in this economic downturn the same way they have in the past.  They postpone purchases until they feel their jobs are safe and their personal balance sheets have stabilized.  Then it’s back to the stores!  This is what’s happening now.

Same store sales improved significantly around the world, ex Japan, in 4Q. Strength is across all price points.  The gains are almost completely due to increase in the number of transactions, not to customers buying higher-priced items.  In the US at least, the traffic in the stores is not up, either.  Rather, people who were just window-shopping in prior quarters are buying now.  Also,

1Q2010 sales so far are running ahead of the “high teens” year on year sales gains TIF expected. The company guidance is for earnings of $.245-$2.50 a share for 2010, up from $2.09 in 2009 and $2.39 in 2008 (before the worst of the financial crisis hit sales).

The New York region was a bit stronger than the norm for the US.  But of the five best-performing domestic branch stores, three were in (beleagered) California:  Orange County, San Francisco and Beverley Hills.

the economy, sort of

TIF took over $100 million out of its cost base in 2009 by laying off 10% of its staff, saving $60 million annually, and reducing marketing expense by $44 million.  The marketing spending is beginning to increase, and over time TIF plans to add back some of the salespeople it eliminated.

Interestingly, however–and I think indicative of the experience of business as a whole in the US–taking a hard look at itself during the downturn, TIF discovered that it had more “fat” in its operations than it realized.  Some of those lost jobs are simply not going to return.

TIF’s expansion plans

The company’s sales per square foot break out regionally as follows:

——————————–2009————-2008

Americas (53% of sales)         $1900                 $2200

Japan (19%)                               $3300                $3400

Pacific, ex Japan (16%)           $3800               $3800

Europe (12%)                               $2700              $2500

Given these numbers, it should come as no surprise that TIF will focus on the Pacific ex Japan for its expansion this year.  The company plans to open eight new stores there.

There will be no expansion in Japan, a country whose decades-long infatuation with Western luxury goods seems to have come to an end.  Instead, operations there seem to me to be destined to become a cash cow that will fund growth elsewhere.

The situation in the US, which showed by far the largest drop in sales per square foot, is interesting.  TIF has been experimenting with half-size (2500 sq ft instead of its traditional 5000), limited range stores recently–indicating it believes the domestic market for full-size stores is very close to saturated.  It has come to the conclusion, however, that its best choice is to build a hybrid of the two–locations with the “look and feel” of a traditional Tiffany store, but with only 3750 sq ft of space.  TIF will open five of them this year.

Europe, where sales are booming for TIF, will get three new locations.   It’s hard for me to tell whether this success is coming in spite of slow economic activity there or because of it.  European analysts tend to lump TIF together with COH as “affordable” (read: not real) luxury.  And some European luxury purists tend to turn up their noses at non-local brand names.  Still, it’s well worth trying to figure out how big this market can potentially be for TIF.

TIF as a stock

This is one I’m not going to be much help on. TIF has been a very strong relative performer since the market turned up a year ago.  Yet it’s trading at just under 20x earnings guidance for 2010, which is a low price earnings multiple for it historically.  I suspect it’s going to continue to do well vs. the S&P 500 during the year ahead.

The problem for me is that TIF–which I owned for many years–has performed much better than I had expected over the past twelve months.  That’s annoying.  Worse, I find it hard to jump on the bandwagon now.  That’s probably good for you if you own the stock.  In situations like this, my change of heart and subsequent purchase without exception mark the relative performance peak.  So maybe I am doing something useful for TIF just by sitting on my hands.


2 responses

  1. It’s gratifying to know that I’m not the only one who buys back into a previously owned stock just as it peaks.

    • Thanks for your comment, I think. Investing is a lot like baseball. It’s a craft skill, but it’s one where it’s very important to study yourself and try to figure out your strong points and weaknesses. The favorite piece of advice from one of my earlier bosses was “Don’t chase!” She also said, “You can’t kiss all the pretty girls!”, a sentiment she doubtless would have to rephrase in today’s world.
      In reality, everyone tries from time to time to do both. We may call it something else, so that we fool ourselves into thinking we’re not violating basic rules. But you also have to ask yourself whether you can pick your spots well enough to be successful. And, more than that, you have to decide whether this is one of the “exceptional” cases.
      As for me, I’m not a good chaser and I don’t see TIF as a case where chasing will work for me. The only thing I feel is in my power with this stock is to make it do down–by buying it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: