Tiffany & Co. (TIF, Financial) is slated to reveal its first quarter results for fiscal 2015 on 27 May 2015. The company, which competes with Zale Corporation (ZLC, Financial) among others in the specialty retail industry and Blue Nile Inc. (NILE, Financial) in the consumer discretionary sector, had reported 4% slump in same-store sales for the fourth quarter of fiscal 2014, sending shares on a downward trend.
For Q4 2014, Tiffany & Co posted earnings of $1.51 a share, marginally beating the consensus estimate of $1.50 a share. However, revenues came in at $1.29 billion, down 1% compared to the prior-year quarter and missing the consensus estimate of $1.31 billion. While a strong dollar was a key reason cited for the company’s lackluster performance, weak demand in Japan was also a contributing factor. For the full fiscal 2014, Tiffany saw global net sales rising 5% to $4.25 billion compared to $4.03 billion in FY2013. While worldwide comparable-store sales increased 4% on a constant currency basis, the figure dipped 2% compared to fiscal 2013 when the impact of currency fluctuations is taken into account. The company logged earnings of $484 million or $3.73 per diluted share, up from the previous fiscal’s $181 million or $1.41 per diluted share. Following the results, Tiffany & Co projected an around 30% decline in net earnings during Q1 2015 and a modest decline in Q2. However, the company said it expected to reverse the downward trend from the third quarter, with a double-digit percentage growth in net earnings being projected for the third and fourth quarters. Tiffany & Co shares are currently up 4.5% since the company’s last earnings report.
Strong dollar likely to continue playing spoilsport
Tiffany & Co attributed its dismal Q4 2014 performance to a strong dollar, an aspect which remains on center-stage even as the company gets ready to reveal its Q1 2015 results. Not only does the factor impact international sales, it also affects domestic sales at its flagship New York location where the strong dollar discourages international tourists from shopping. Moreover, with the company planning to open net 12-15 company-operated stores across the globe, with a major number of new stores being planned in the Asia-Pacific region in FY2015, the impact of foreign currency headwinds are likely to chop off a significant portion of Tiffany & Co’s Q1 revenues. However, it is Asia-Pacific that saw strong 4% year-over-year growth in revenues in the fourth quarter of fiscal 2014, faring better than the Americas, Japan and Europe in terms of sales growth. Consequently, all eyes will be on whether revenues generated from this region would be enough to offset any losses owing to the strong dollar.
At the same time, although the company still grappling with the continuing global economic slowdown that has affected same-store traffic and sales, Tiffany & Co is focusing efforts on finding more avenues for revenue generation, including new product launches, while it continues to spread its footprint across the globe. While the company recently revealed a new range of New York-designed timepieces – CT60, powered by Swiss movements, Tiffany & Co also launched its new boutique store at the heart of Geneva, in Switzerland. However, while the company and a section of investors is still waiting for the global economy to pick up, experts opine that the extremely well-managed company with a globally recognized brand name is a promising bet in the long term. Consequently, a number of firms, including Zacks, Atlantic Equities and Moness Crespi & Hardt, have recently upgraded their rating on the Tiffany & Co shares. Consensus estimates peg the company’s Q1 earnings at $0.69 a share, down from $0.94 three months ago, with quarterly revenues expected to grow 9.2% year-over-year to $918.7 million.
Final thoughts
Tiffany & Co saw a lackluster fourth quarter of fiscal 2014, primarily owing to the negative impact of a strong dollar. While the impact is likely to overflow into the first quarter of fiscal 2015, the continuing global economic slowdown is also likely to result in poor year-over-year revenue growth. The company’s own guidance sees its Q1 earnings decline 30% year over year. However, experts opine that Tiffany & Co should be a good long-term bet owing to its superior management and global repute as a brand. In the short term, while a better-than-expected earnings report would likely get shares moving again, a lower-than-expected report may not send shares significantly down. Further, several firms have recently upgraded their rating on the company’s shares. Tiffany & Co shares have traded in the $83-$90 a share range over the last three months. The company’s stock presently carries a consensus price estimate of $87.08 and a "buy" guidance.
