Tiffany: a very good fiscal 2Q2010

TIF’s 2Q10

TIF reported earnings for its fiscal second quarter (ended July 31st) before the market opened last Friday.  Ex unusual items, earnings per share were up 45% year on year.  Gross margins were up by a considerable amount. European and Asia ex Japan operations boomed.  Gold and platinum jewelry were up, (less expensive) silver items were flat.

Watches, the most highly cyclical of jewelry purchases, were up 30% year on year during the quarter.

Business accelerated in August.

Two flies in the ointment.  Sales in the US were slightly lower than TIF expected, due to softness earlier in the quarter and on items below $500 in price.  This may have been a question of tough comparisons, as TIF introduced its popular line of key pendants last year.  Or it could be evidence that  although the economy is slowly returning to normal for most TIF customers, things are not getting better for the 10% or so of the workforce that is still unemployed.  (My money is on the latter, but then regular readers will have figured out that I think there’s a structural mismatch between the workers our educational system is churning out and the employees 21st century companies need.  As an investor, though, I have to constantly remind myself not to force this interpretation on data that don’t support it.)

TIF also said that 3Q earnings growth would likely be slowed by unusually large marketing expense in preparation for the holidays, a notable portion of that in support of its burgeoning Chinese business.

TIF maintained its second half earnings guidance, but lifted its full-year expectations to reflect the better than forecast first half.

The stock fell 6% on the news.   I only look at TIF out of the corner of my eye, so don’t ask me why Wall Street reacted so badly.

the details

2Q regional sales comparisons

worldwide   +9%, +6% comp stores

Americas     +8%,  +6%

Pacific ex Japan     +21%, +10%

Japan     +4%, -1%

Europe     +14%, +11%

the Americas

Sales momentum built during the quarter.  Sales gains came predominantly from increases in transaction size.  All price points were strong, except for the lowest–items under $500.

Canada, Mexico and Brazil all had healthy sales increases.  In the US, softness geographically was only evident in southern California, Arizona and Las Vegas (all areas of rampant real estate speculation during the housing bubble).

More than half the growth came from foreign tourists, who account for about 15% of overall US sales.

Europe

Performance for this relatively late-blooming area for TIF were even better than they seem.  On a constant currency basis (factoring out the 10% fall in the € and 7% decline of the £ against the $) European revenues advanced 25% overall and 21% on a comparable store basis.

Most sales are to locals, although TIF did see an increase in purchases from Chinese tourists.

Pacific ex Japan

As usual, greater China and Korea boomed, with sales up over 20% (even though 2009 was an up year for the region).   Australia and Taiwan were relatively flat.

Japan

Once the centerpiece of TIF’s international expansion, Japan remains a tough place to do business.

my thoughts

I don’t know the stock well enough any more to have a strong opinion.  Admittedly, I’ve been looking at TIF more to get a sense of what high-end retail around the world is doing than as a potential investment.

Two things have caught my eye, however:

–TIF has been trading at a market multiple for the past several years.  I think it deserves better than that.

–the company has raised the dividend twice so far this year.  The stock is now yielding 2.4%.

To me, TIF looks attractive. I’ll have to do some research.

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