TIF Earnings: A Read on High-end Consumers?

The sparkle on Tiffany & Co.'s TIF faded in recent months after the high-end jeweler told Wall Street in January that holiday sales, a key revenue and profit driver, were lackluster and warned of lower-than-expected earnings for fiscal 2015. How bad will it be? We’ll find out Friday when TIF paints the full picture of the November-December scene and the entire Q4.

In January, management said that holiday sales were anemic, falling 6% on a year-over-year basis to $961 million. Much of that was attributed to weak sales at home and in Asia-Pacific, and to the strong dollar. Sales at stores open longer than a year, a crucial measure of health in the retail industry, dove 9%. Analysts fear TIF’s numbers, as well as those from other luxury retailers, could represent an overall sluggishness in a sector that has traditionally weathered economic anomalies well. TIF’s iconic standing, both in the U.S. and abroad, has typically kept its sales from deep declines, and the demand for its distinctive robin’s-egg-blue box has been a great indicator of how high-end sales are holding up.

Management cautioned of a 10% drop in fiscal 2015 earnings per share compared with the year-ago period of $4.20. At that rate, we’re looking at full-year earnings of $3.78. For the quarter, Wall Street tempered its expectations with a lowered per-share profit of $1.41 on revenue of $1.22 billion, according to analysts reporting to Thomson Reuters. TIF has missed analysts’ expectations the last two quarters.

The Downgrade Pageant
Earlier this week Citi joined a parade of analyst downgrades, noting that near-term developments don’t look good. “Something’s not working,” Citi analysts wrote. “Softness was broad-based over holiday, and we don’t see trends improving anytime soon. Not only were tourist sales weak, but so were sales to local customers.” They suggested a “change in strategy,” noting that could take “some time and money to execute.” Citi analysts, like all those on Wall Street covering TIF, will be listening to what management has to say about this year on its post-release conference call, where executives will be taking questions for the first time in many years.

All that said, TIF reiterated its dividend-staying power by announcing that a quarterly dividend of $0.40 a share will be distributed on April 11 to shareholders of record as of March 21. At an annualized rate of $1.60, that’s a 2.29% yield at current stock prices. Remember, past performance is no guarantee of future results.

TIF is not a big player in the options pit, and the activity we’ve seen of late has mostly been all deep in the money. Put and call buyers are both right at the money at the 70 strikes ahead of earnings. Not surprisingly, its implied volatility, which is the market’s estimate of the volatility in the stock price, squares evenly with its historical patterns, smack dab in the middle. Short-term option traders have priced in a potential 5.5% share price move in either direction around the earnings release, according to the TD Ameritrade thinkorswim® platform’s Market Maker Move indicator.

Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

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