The luxury jeweler Tiffany & Co (TIF, Financial) is one of the leading jewelers in the U.S. Its shares have been suffering for the last year and has dropped 22% since January. The inability of the company to attract more customers is the primary reason behind this. The jeweler’s fourth quarter results were indeed disappointing since both the top line and the bottom line numbers were below the Street’s expectations. Let’s dig in deeper.
The inside story
Revenue for the quarter dropped 1% to $1.3 billion, over last year. This was slightly below the analysts’ estimate, mainly due to a stronger dollar. On a constant currency basis, the revenue was 3% higher as compared to the last year’s quarter. However, the top line for the fiscal year was up by 5%, clocking in at $4.25 billion.
The same store sales of the company were also weak because of lower interests of customers in its outdated products. Thus, the global same store sales dropped 4% during the quarter. Also, the stronger dollar made Tiffany’s products more expensive for the foreign tourists. Same store sales in Europe fell 1% in the fourth quarter. Thus, this resulted in lower demand in the U.S. since demand shifted to other economies offering cheaper products which are easy to buy for the customers. The U.S. makes most of the revenue of the company. Hence, lower sales in this region affects the top line to a great extent.
The bottom line of the company was better. Earnings rose 3% to $1.151 per share. This was a penny higher than the analysts’ estimates. For the full year, earnings jumped 13% to $4.20 per share, over last year. The gross margin improved 160 basis points to 59.7% due to lower input costs and a shift towards higher margin products. Moreover, Tiffany has increased its product prices steadily, resulting in higher margins.
Competition gets tougher
The luxury retailer faces stiff competition from peers such as Signet Jewellers (SIG, Financial). Signet Jewellers registered a great quarter owing to its acquisition of Zale division. The buyout helped the company in reporting a 46% hike in revenue and 40% jump in earnings. Thus, the results were much better than that of Tiffany.
Some of the key problems of Tiffany are the lack of new products as well as marketing initiatives, which failed to attract more customers. Also, the company failed to strengthen the lower priced product segment through such measures.
Tiffany’s sales were weak in the regions such as the U.S., Europe and Japan. Sales fell 4% in Japan due to a higher consumption tax and a weaker yen. However, demand in China is on the rise.
Further, the uneven economic recovery has made rich people wealthier. Hence, the affluent customers are now willing to spend more on jewelry. The jeweler plans to open 12 to 15 new stores this year, with a major focus on the Asia-Pacific region.
The bottom line
Although Tiffany has been one of the customer favorites, it failed to impress the investors because of the currency fluctuations. It has also lowered its outlook for the first quarter of 2015 and for the full year. It expects the bottom line to drop 30% due to a stronger dollar against yen and euro. But these changes are temporary. The company needs to focus on its products and marketing initiatives, in order to register better numbers. Therefore, investors should sit back and wait for the right time to invest in this jeweler.
