David Poppe:
I will talk about Tiffany (NYSE:TIF) and Saatvik can talk a little bit about Richemont. I will give you the high level view. The high level view we have is that Cartier and Tiffany are two of the great jewelry brands in the world. We have owned Tiffany not consecutively but for most of the last 14 or 15 years; so we feel like we know it pretty well. What I would say about Tiffany is it has grown the topline at about 7% over the last decade, which is good, not great but good. But it is still immature in a lot of parts of the world. Except for Japan, Tiffany was very late to Asia-Pac, very conservative about expanding in Europe. American luxury — I think a lot of Europeans do not believe in it, and Tiffany was conservative about enlarging the store base there. But in the last few years, Tiffany has opened a bunch of stores in Europe including one on the Champs-Élysées in Paris, and done very well. The company has gotten more aggressive in the last few years about opening stores in China, and not only are those stores doing really well, but the engagement ring custom is catching on there as it did in Japan, I want to say in the ‘70s. It seems like that is going to become a custom for people all through Asia as well, which is good for Tiffany since the company has a strong position in higher-priced engagement rings.
Tiffany managers have been very good stewards of the brand and very good store operators, although not as financially sophisticated as they might have been in some cases. So we think there is good operating margin potential for Tiffany. The tax rate is an American tax rate, even though over half the sales come from outside the United States. So there should be good opportunity to manage the tax rate. The company is talking about getting it from 34% − 35% to 30%, which is a good opportunity for earnings growth.
If I think about a sustainable 5% − 6% − 7% − 8% revenue growth rate, operating margins that could be higher, and a lower tax rate, I feel pretty good about Tiffany. Again, the bigger picture is it works everywhere. The comps right now... the earnings this year will be tricky because currency is so much against you when you do a lot of your sales outside the United States, and Tiffany makes a lot of the product in the States. So it is probably going to have a difficult earnings year in 2015. But longer term, branded jewelry is taking share from unbranded jewelry at a rate of something like a point a year. Cartier and Tiffany ought to be two major beneficiaries of that trend.
From Ruane, Cunniff & Goldfarb Investor Day 2015 Transcript Part I.
