Hedge fund Jana Partners (Trades, Portfolio) established a stake in Tiffany & Co. TIF on Feb. 14 and entered into an agreement to add three new members to the company’s board of directors on Feb. 21.
Founded in 2001 by Barry Rosenstein, the firm engages in activist investing, a practice where an individual or group takes a significant position in a company in order to implement change. In the case of Tiffany, the firm is hoping to rejuvenate the brand through the new additions to the board as the company has been struggling with declining sales.
Under the terms of the agreement, Tiffany will appoint Roger Farah, James Lillie and Francesco Trapani to the board of directors, expanding it from 10 members to 13. The appointees will be formally nominated and elected at the company’s annual meeting.
In addition to his role as a director, Trapani, who is a former CEO of Bulgari, will assist in the search for the company’s new CEO. Frederic Cumenal stepped down from the position earlier this month.
Rosenstein said he believes the appointees will provide “fresh perspective and unique insight” that will prove to be beneficial in improving the company’s performance and creating shareholder value.
In regard to its holding, the firm purchased 6,095,740 shares of the well-known jeweler for an average price of $82.96 per share, giving it 8.2% portfolio space.
Established in 1837, the New York-based jeweler has a market cap of $11.23 billion; its shares were trading around $90.23 Friday with a price-earnings (P/E) ratio of 25.4, a forward P/E of 21.6, a price-book (P/B) ratio of 3.8 and a price-sales (P/S) ratio of 2.8.
The Peter Lynch chart below shows the stock is trading above its fair value. 
GuruFocus ranked the company’s financial strength 7 of 10. The Piotroski F-Score of 6 and Altman Z-Score of 5.3 suggest the company is in stable business and financial condition. Although the cash-debt ratio of 0.7 falls below the standard of one, which indicates the company is able to cover debt with cash on hand, the interest coverage ratio of 15.9 surpasses Benjamin Graham’s standard of five and implies Tiffany is able to pay interest expenses.
GuruFocus ranked Tiffany's profitability and growth 8 of 10. It has an operating margin of 18.2% and a net margin of 11.3%. The return on equity (ROE) and return on assets (ROA) outperform 77% and 81% of other companies in the global luxury goods industry. Similarly, its return on capital (ROC) outperforms 65% of competitors.
Tiffany has three-year revenue growth of 2.3%, three-year EBITDA growth of 3.2% and three-year EPS growth of 3.4%.
The trailing 12-month dividend yield is 1.94%, and the forward dividend yield is 1.99%. Over the past five years, Tiffany has grown its dividend at a rate of 10.4% per year.
With its purchase, the firm became the company’s largest shareholder among the gurus with 4.9% of outstanding shares. In total, 10 gurus hold the stock.
Chairman and Interim CEO Michael Kowalski expressed management’s excitement toward adding the new members, and its appreciation to Jana Partners in helping to meet objectives.
"These three new directors are all accomplished executives with a broad range of relevant experience and skills that will benefit all shareholders as we focus on accelerating the execution of our core business strategies,” Kowalski said. “We also believe the strength of our board will be an asset in our ongoing CEO search process. I look forward to completing that process and welcoming our new CEO to our board and, after an appropriate period, I anticipate being able to relinquish my responsibilities as chairman to a successor."
Tiffany will report its fourth-quarter and full-year 2016 results on March 17.
Disclosure: I do not own any stocks mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
