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: Charts, News), whose stock still posted a 6% decline.
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: Charts, News) posted net margins of 8.8% and 2.6%, respectively, while its high-end rival Harry Winston Diamond (HWD: Charts, News) 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?
Can Tiffany bounce back as it did in 2009?
Top Ranked Dividend Stock Tiffany & Co. is Oversold
Technical indicators say “buy,” but are investors brave enough to pick up shares?
Other Stocks in the News
Best Buy Pops On Latest Talk Of Founder-Led Buyout
Is Schulze bluffing, or does he really plan to follow through on his plan to take Best Buy private?
Barclays fined $452 million for Libor ‘misconduct’
More bad news for the financial sector as Barclays’ misconduct becomes public.
Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.