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The Science of Hitting
The Science of Hitting
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Tiffany's - Q2 2011

August 26, 2011 | About:

Tiffany’s (NYSE:TIF), the well known jewelry company which has been in business since 1837, held a conference call with investors on Friday to discuss Q2 2011 results. Normally, TIF isn’t a company that I would follow too closely, but the near 10% jump in the stock today caught my attention. Looking back over the past five years, with the economy in the gutter and the Dow and the S&P 500 both in the red, Tiffany’s stock has more than doubled; as such, I figured it was worth seeing what management has planned and what they’ve done as of late to drive a stellar stock performance. Here are some of the highlights from the 8-K and the prepared remarks:

Net sales rose 30% over Q2 2010 (24% with constant currency), largely due to strong growth all across the globe; by geographic region, the America’s increased 25% to $438.2 million (with sales in the New York flagship store up 41%), Asia-Pacific increased 55% to $173.2 million, Japan increased 21% to $142.5 million, and Europe increased 32% to $101.3 million. For the America’s, Asia-Pacific, Japan, and Europe, the constant currency numbers were 23%, 45%, 8%, and 17%, respectively.

With such strong numbers, it is of little surprise that management is looking to continually expand their footprint; as of the end of the reporting period, the company operated 236 stores (98 in the Americas, 55 in Japan, 52 in Asia-Pacific and 31 in Europe), compared to 223 a year ago.

Net earnings increased 33% to $90 million; after adjusting for a one –time headquarters relocation expense, non-GAAP earnings rose 58% to $0.86 per diluted share, compared to $0.55 (also a small adjustment) in 2010. In addition, ROA and ROE were 11% and 19% in the quarter, respectively. Through the first six months of the year, diluted EPS came in nearly 50% higher ($1.52 vs. $1.03) compared to the first half of 2010.

The company increased its earnings forecast for fiscal 2011, with this to say about their full year expectations for both sales and earnings:

“Our full year forecast now calls for a high-teens percentage increase in worldwide net sales. By region, we are looking for sales in the Americas to increase by a high-teens percentage with local currency comps up by a mid-teens percentage, sales in Asia-Pacific to increase by at least 30% with local currency comps up close to 25%, sales in Japan to increase by a high single-digit percentage in total with a low single-digit comp increase in yen and sales in Europe to increase by at least 20% with local currency comps up by low-double-digit percentage

We are now forecasting full year earnings per diluted share in a range of $3.65 to $3.75 per diluted share, not including non-recurring expenses of about $0.20 per share. This new forecast represents a 25% to 28% increase over last year's $2.93 per diluted share.”

The company spent $25 million in the second quarter to buy approximately 330,000 shares at an average cost of $74.29 per share. In the first six months, they repurchased 783,000 shares at an average cost of $67 per share ($52 million).

Management summed up their performance as such: “On our conference call 3 months ago, we characterized Tiffany's first quarter results as outstanding due to 20% sales growth and 39% earnings growth, excluding non-recurring items. The second quarter results that we reported today deserve at least a similar superlative description.”

With strong double digit sales increases in every region and nearly 60% earnings growth from a company selling high priced jewelry in the middle of a worldwide economic crunch, I would have to agree with that assessment.

About the author:

The Science of Hitting
I'm a value investor with a long-term focus. As it relates to portfolio construction, my goal is to make a small number of meaningful decisions a year. In the words of Charlie Munger, my preferred approach to investing is "patience followed by pretty aggressive conduct". I run a concentrated portfolio, with a handful of equities accounting for the majority of its value. In the eyes of a businessman, I believe this is sufficient diversification.

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