Tiffany & Co. (TIF)
Now that fears of a deeper recession or possible depression have subsided, businesses and analysts are expecting profits to rebound. Consumer driven businesses should not be so quick to assume that the positive momentum will automatically spill over into their earnings. Yes, there have definitely been some improvements in earnings, but consumers are still dealing with the lasting effects of the recession. The consumer market still remains tough for businesses that provide products or services that are considered luxuries. Tiffany & Co had some tough quarters during 2009, but the end of the year proved to be much better for the jeweler. The company reported that its fourth-quarter profit more than quadrupled. What helped the company achieve such a big jump in profits? How did the company’s results stack up against analysts expectations?
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Tiffany’s streak of declines in the early part of 2009 was no surprise. The last thing on a consumer’s mind during that time was a diamond ring or an engraved bracelet. Consumers were focused on either saving every extra dollar they earned or using it to pay for bare necessities. Things started to shift in a better direction for Tiffany during the fourth quarter. Luxury-goods demand returned over the crucial holiday season, with retailers beginning to replenish stocks at year end. The increase in demand during the holiday season gave the company a confidence boost and as a result it raised its 2009 guidance in January. Sales across the Americas rose 14 percent to $523.5 million in the fourth quarter with comparable store sales in the U.S. up by 11 percent. Tiffany’s quarterly profit more than quadrupled to $140.4 million, or $1.10 per share, from $31.1 million, or 25 cents per share last year.
Although the earnings appear impressive on the surface, the results missed analysts’ expectations. Analysts surveyed by Thomson Reuters were expecting fourth-quarter earnings of $1.13 a share on revenue of $970.93 million. After a number of disappointing quarters, analysts were expecting the results to be much better, especially during the holiday season. Tiffany credited rising expenses as one of the reasons that if failed to meet expectations. The company said expenses rose 7 per cent in the fourth quarter due to higher incentive compensation for management. Tiffany also said that increased wholesale sales of rough diamonds that generate minimal, if any, profit as the reason behind the decline in per-sale earnings in the fourth quarter.
Tiffany still has a tough road ahead of itself. Record unemployment rates and tight credit conditions are still impacting consumers. For fiscal 2010, the company expects worldwide sales increase of approximately 11%. Net earnings from continuing operations are expected to be in the range of $2.45 – $2.50 per share. The company’s current projection would exceed analysts’ projections. Hopefully, Tiffany is not jumping the gun just because they had an impressive fourth-quarter. The company does not have the holiday season to fall back during the first half of the year. Tiffany shares fell $2.10, or -4.4%, in premarket trading Monday.
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