Tiffany's Falls Despite Surging China
As China rises and its appetite for luxury grows, jewelry heavyweight Tiffany's (NYSE: TIF) is seen by many as a derivative play on the Chinese economy. Yet, after the New York-based company's latest earnings report, traders may want to rethink such a play.
According to economic data released overnight, Chinese exports grew over 14 percent in December, blowing away expectations for a 5 percent jump. The Chinese ETF iShares FTSE China 25 Index Fund (NYSEArca: FXI) rallied 1 percent on Thursday.
With this in mind, one would expect Tiffany's to have had an excellent holiday season, given the brand's popularity among Chinese consumers. Yet, just the opposite happened, with Tiffany's reporting lackluster results for the two month period ending December 31.
While worldwide net sales increased 4 percent, comparable store sales remained unchanged from 2011. Asia-Pacific sales were up 13 percent, but failed to boost the company's holiday sales to the desired level.
Due to the lower-than-expected sales figures, Chairman and CEO Michael J. Kowalski stated: "Holiday period sales growth was at the low-end of our expectations, and we now expect that net earnings for the year ending January 31st will be at the lower-end of the forecast that we issued on November 29th of $3.20 - $3.40 per diluted share."
Kowalski goes on to state, “…management is planning sales growth conservatively for 2013 and at this point expects net earnings growth of 6% - 9%.” Due to Tiffany's lackluster report, the company has traded down as much as 8 percent on Thursday. While that's important in itself, the real takeaway here may be the glaring disconnect between the jeweler's performance and the Chinese economy.
Brian Sozzi, Chief Equities Analyst for NBG notes, “Tiffany's challenges are more fundamental than global cyclical, ranging from too aggressive a store push (occupancy costs high) to shifts in what consumers favor with $500 in their hands (iPads; and since they favor iPads, that means Tiffany's lucrative margin products, silver, are less of an offset to still strong sales of engagement jewelry, etc.).”
In other words, Chinese consumers play a weaker role in the success of Tiffany's than many think.
As of this writing, Tiffany's is down around 3.5 percent, indicating that the worst may have come in the early hours of trading. Regardless of how the stock performs in the coming days and weeks, look for traders to become increasingly skeptical of the relationship between the Chinese marketplace and shares of Tiffany's.
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