Tiffany & Co. (TIF) Loses its Luster Again
Shares of jewelry retailer Tiffany & Co. (TIF: Charts, News) plunged on Wednesday, after the company reported a 30% decline in earnings and offered bleak full-year guidance. For its third quarter, which ended on October 31, New York-based Tiffany reported earnings of 49 cents per share, or $63.2 million, down from 70 cents per share, or $89.7 million, a year earlier.
Revenue rose 3.8%, or 5% excluding foreign exchange rates, to $853 million. Both bottom and top lines missed analyst estimates of 63 cents per share on revenue of $859 million. Daily Chart
Looking forward, Tiffany slashed its full-year EPS to a range between $3.20 to $3.40 per share, down from a range between $3.55 to $3.70 per share. It also cut its sales growth outlook down to 5%-6%, down from its previous forecast of 6%-7%. Tiffany attributed its disappointing earnings to weaker margins caused by higher costs for precious metals and diamonds. Tiffany's weakness is a continuation of the weakness in luxury retailers starting last holiday season. Gross margin contracted from 57.9% to 54.4%, while input costs rose 12%. The company noted that its contracting margin was caused by both higher metal and diamond costs, as well as the popularity of its higher-priced, lower-margin products. CEO Michael J. Kowalski also noted that a higher effective tax rate also crimped margins. Looking ahead, the luxury market faces additional macro challenges. Earlier this year, consulting firm Bain & Co. forecast a slowdown in global luxury sales. Last week, French luxury group LVMH's watches and jewelry division forecast a slowdown in demand for luxury products in China - where Tiffany plans to open eight new stores by the end of the year. Sales of its least expensive products - its silver and sterling silver jewelry - were surprisingly weak. This raised concerns, since a quarter of Tiffany's annual revenue is generated from its low-end silver products, such as its sterling silver key charm. Bearish analysts are concerned that Tiffany's low-end products are losing their appeal in an increasingly crowded marketplace. Global same-store sales remained flat from the prior year, but excluding currency impacts it rose an anemic growth of 1%. Same-store sales in its Asia-Pacific region posted a 3% drop, while Europe and Japan both posted 2% growth. North America posted flat same-store sales. Revenue grew 2% in its Asia-Pacific region, 3% in the Americas and 6% in Europe. Excluding the currency impacts of a strong Japanese yen, a weak euro and an unstable U.S. dollar, sales grew across all regions. Kowalski remained optimistic regarding Tiffany's holiday sales, due to easier year-over-year sales comparisons as well as new store openings and a refreshed product line. The holiday season, which starts with Black Friday and ends with after-Christmas sales in the United States, is considered a crucial time for retailers, which can generate over 40% of its annual revenue during the frantic shopping period. Tiffany pays a quarterly dividend of 32 cents per share - a 2.17% yield at current prices. The stock has declined 12.2% over the past twelve months, and trades at 14.2 times forward earnings. Tiffany trades with a 5-year PEG ratio of 1.49. Other News About TIF Tiffany & Co.'s Missed Wall Street Estimates as Jewelry Company Cuts 2012 Outlook
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Published on Nov 30, 2012
By Leo Sun