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 Tiffany misses estimates again. Tiffany & Co. Management Discusses Q3 2012 Results Tiffany management remains cautious regarding its full year growth prospects. Other Stocks in the News Apple Inc. iPhone 5 Finally At Full Availability: Gene Munster Is the iPhone 5 finally ready to flood the market? RIM Stock Soars After Goldman Sachs Upgrade Is the worst over for Research in Motion? Copyright 2012 by, 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, Inc.) or its employees responsible.

Published on Nov 30, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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