Tiffany (TIF, Financial)'s investment in a range of new products could boost its financial performance. The jewelry retailer has increasing visibility over its five-year product pipeline, and is seeking to encourage customers to move to higher price points. The company is also investing in the customer experience in stores and online, while improving efficiency could strengthen its competitive position.
Having fallen 33% in the last year compared to a 4% rise for the S&P 500, it could stage a successful turnaround.
New products
The company’s latest products are expected to resonate with customers and help to further differentiate it from peers. For example, having successfully launched the platinum and diamond-based Paper Flower collection in the last fiscal year, it has a number of new designs that it plans to launch throughout the current year.
A key part of its new product releases is encouraging customers to trade up to higher price points. For example, in the most recent quarter it introduced Tiffany Love Bugs, which complement its Return to Tiffany collection and are expected to contribute to a higher transaction value across multiple product categories.
Improving the customer experience
Expansion in China is expected to further improve the company’s prospects in the world’s second-largest economy, where sales growth remained in the double digits in the most recent quarter. As part of this, Tiffany has plans to launch a dedicated e-commerce website in China, while in the most recent quarter it relocated its Beijing store. It now has a 6,000 square-foot format that focuses on providing a distinctive retail experience that encourages greater interaction from customers.
The company opened a concept store in Japan in the most recent quarter that is focused on providing a differentiated shopping experience versus rivals. An improved customer experience is also expected to be delivered online following last quarter’s relaunch of all of its global websites. This will allow greater personalization in terms of recommended products, while it is now possible for customers in the U.S. to order diamond engagement rings online.
Investment is also being made to improve in-store presentation. Last year, the company launched a global display enhancement initiative that aims to add innovative elements of visual merchandise within stores. This is on track to be rolled out in the current fiscal year, having resonated with customers in North America in the first part of the year.
Risks
Tiffany’s recent performance has been disappointing. In the last quarter, for example, worldwide sales decreased 3%, with a 15% rise from the same period of the previous year. Much of the drop was due to declining tourist sales, which represent a low double-digit percentage of its total U.S. retail sales. They declined 25% versus a year ago, with a sharp fall among Chinese tourists. This trend could continue in the current year.
There may also be a negative impact from tariffs on products that the company exports to China from the U.S., as it is not planning to raise retail prices in China over the short run. This could squeeze margins in the current fiscal year.
In response to an uncertain near-term outlook, the company is seeking to become increasingly efficient. A key part of this is investment currently being made in its IT system, as well as a new advanced supply chain planning system. Together, these investments are expected to lead to more sophisticated load management and production scheduling across its suppliers and manufacturing network. Savings are also expected to be made through a refreshed global procurement program, as well as organizational efficiencies that are due to reduce labor costs.
Outlook
In the current fiscal year Tiffany is forecast to deliver a rise in earnings per share of 7%, followed by growth of 8% in the next fiscal year. This helps to justify its price-earnings ratio of 19.6.
The company’s focus on introducing new products to increase the average transaction value, as well as improving the customer experience online and in-store, could enhance its competitive position.
Although it faces further uncertainty from weaker tourist spending, an increasingly efficient business model may boost its long-term financial outlook.
Having underperformed the S&P 500 by 37% in the last year, the stock could offer investment appeal.
Disclosure: the author has no position in any stocks mentioned.
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