Shares of jeweler Tiffany & Co. (TIF: Charts, News) slid to new 52-week lows this week, continuing the plunge that followed its lackluster first quarter earnings and disappointing second quarter guidance. The stock, which was surprisingly resilient during the 2008-2009 recession, has lost over a third of its value over the past twelve months.
The entire jewelry sector, which is often used as a gauge of luxury spending, appears to be out of favor. The best-performing jeweler over the past twelve months was its smaller rival Signet Jewelers (SIG
), whose stock still posted a 6% decline. Daily Chart
Tiffany has now missed earnings expectations for two consecutive quarters, which has made its stock a popular target for shorts. Rising commodity costs, which has made diamonds, gold and silver more expensive, have squeezed the company's margins. In May, the company posted first quarter earnings of 64 cents per share, or $81.5 million, on revenue of $819.2 million. Analysts had expected 63 cents per share on revenue of $817 million. The slight beat on the top line wasn't enough to offset weakness on its bottom line. Gross margin shrank slightly from 58.3% to 57.3%. Despite current macro problems, Tiffany's net margin 0f 11.9% is still stronger than its rivals. Its discount competitors Signet and Blue Nile (NILE
) posted net margins of 8.8% and 2.6%, respectively, while its high-end rival Harry Winston Diamond (HWD
) had a net margin of 4.5%. A strong dollar is also cutting into its international sales. Tiffany also slashed its full year guidance, lowering its expected 2012 EPS from a range between $3.95 to $4.05 down to $3.70 to $3.80. Revenue growth was also decreased from 10% to a range between 7% to 8%. Analysts had expected full year earnings of $3.97 on revenue of $3.97 billion. The sole bright spot in its earnings report was a 10% dividend increase that continues its tradition of increasing payouts since 1988. Due to its recent plunge, Tiffany shares, which now trade at 15 times trailing earnings, are now fundamentally cheaper than all its comparable peers except for Signet Jewelers, which trades with a trailing P/E of 11. In addition, Tiffany's quarterly dividend of 32 cents, a 2.55% yield, is the highest in the industry. Bullish analysts believe that despite Tiffany's current slump, its high-end focus will help it bounce back, just as it did after the 2009 crash. Others, however, warn that the slowdown in sales in China and other emerging markets will make it much harder for Tiffany to stage a comeback. Harry Winston, which sells higher-priced products than Tiffany, recently warned of a slowdown in its Chinese segment, which bodes ill for the rest of the luxury sector relying on China. Curiously, Hong Kong-based jeweler Chow Tai Fook recently reported a record 79% jump in profits. This raises concern that the Chinese elite may be developing a taste for domestic products rather than imported ones, to the chagrin of Western companies relying heavily on Chinese revenue. Tiffany's lack of gold products, which are popular among Chinese consumers, could also become a major weakness. Looking forward, Tiffany's stock trades at 12 times forward earnings with a 5-year PEG ratio of 1.16. Like the entire market, the company's future depends on a resolution of the Eurozone crisis and signs of growth in China and other emerging markets. These positive factors would spur sales and reduce commodity costs as the U.S. dollar cools down. Until then, Tiffany remains the queen of an out-of-favor sector, but remains the most fundamentally attractive stock among its industry peers. However, value investors should look for signs of technical consolidation and a basing formation before buying this stock, as bears are still firmly in control. Other News About TIF Can Tiffany Sparkle Again After a 52-Week Low?
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