Tiffany Gets Returned, but Bigger Returns Could Be Ahead
Tiffany (TIF) rallied to more than $105 per share after a strong second-quarter report on Wednesday morning, but by the end of the day the stock had fallen back down to $101.75 to give up most of its gains. The jeweler still ended the day up by about 1%, but this came on the heels of some impressive financial statistics. Thus, this could be a buying opportunity for investors who are interested in the jewelry business.
Tiffany saw comps increase in its two largest markets. Specifically, comps jumped 8% in the Americas and 9% in the Asia-Pacific region for the first two quarters of the year, holding exchange rates constant. The jeweler didn't do that badly in Japan during this period either with a 9% rise in comps. The jeweler explained that the consumption tax hike affected its results during the first half. Basically, Japan raised this sales tax from 5% to 8% in April and shoppers knew about it ahead of time so they rushed out to make big purchases in the first quarter and then cut back in the second. Tiffany's comps did fall 5% in constant exchange rate terms in Europe, though. However, investors should consider margins as well.
Tiffany did very well on margins and multiple factors contributed to this. The jeweler definitely has a strong brand name, as its supply costs fell but it managed to get customers to pay more for its jewelry anyway. With some of its costs fixed, much of the extra revenue dropped to the bottom line. Gross margin jumped 2.3 percentage points to 59.1% for the first half as a result. To see just how well Tiffany did here, it's worth comparing these results to those of Movado (MOV).
Movado has a lower gross margin than Tiffany to begin with and its margin barely budged during the second quarter with a quarter-over-quarter decline of 0.1 percentage points to 54.0%. While Movado explained that currency exchange rates held back its margin during the quarter, Tiffany has to deal with this factor as well and it still saw its margin expand. For an apples-to-apples comparison, Tiffany actually saw its gross margin rise 2.4 percentage points to 59.9% for the quarter. So it looks like Tiffany's price hikes made up for any downside from exchange rates.
Tiffany also comes out ahead of Movado when considering forward guidance. While Movado left its guidance unchanged, Tiffany actually raised its earnings forecast range by $0.05 per share. The jeweler has a stock buyback program which could help it achieve this target as well. Rising margins and higher sales are superior sources of earnings growth, but buybacks still help and Tiffany did say that it bought back $16 million worth of its stock during the first two quarters.
So it looks like Tiffany had a strong quarter even considering headwinds that held back one of its competitors. Tiffany does sell at a premium to Movado with a forward P/E of 21 versus 13 for its peer, but its report looked better as well and that provides some justification for this. If Tiffany did give up some of its share price gains on Wednesday because of reports from other retailers, this could be a buying opportunity since the jeweler has rosy expectations.