Market Overview

Tiffany's Is The Blue Box That Keeps On Giving

Peter May, the founding partner and President of Trian spoke at the Ira Sohn Conference and said that he is long Tiffany's (NYSE: TIF), and has been since 2007.

May said the company has great free cash flow, a good return on capital, and likes the fact that Tiffany's brand has and always will stand for timeless jewelry.

Tiffany's, which is up sharply this morning on strong earnings, is a $3 billion global brand, and has 233 stores, with room for many, many more. The U.S. has 84 stores, and the company feels it can sustain 150 stores in the country.

Some of the growth initiatives May mentioned are new stores, the fact it is one of the most of most valuable brands in world, and new analyst coverage. He feels the stock should be covered by luxury analysts, such as those who cover Hermes, and Louis Vuitton, in addition to those who cover the likes of Sears (NASDAQ: SHLD), Target (NYSE: TGT), and other lesser retailers.

During the recession, Tiffany's took market share, and executed prudent restructuring to cut costs. The stock only trades at 17.5 times earnings, but earnings are forecasted to grow in the mid teens for the foreseeable future. The company is dedicating a lot of resources to international growth, and the company's new store design was done to make it more consumer friendly, and make customers feel more at ease.

There is also the aspect of vertical integration, as the company, is controlling its supply of diamonds from a Harry Winston (NYSE: HWD) mine in Canada.

A weaker dollar will help Tiffany's, as it generates a large percentage of its revenues from outside the U.S. May said the company held an event in China that got tons of publicity, as as the Chinese get wealthier, the want to spend money to show off their wealth.

As Tiffany's expanded, it realized it was too dependent on the diamond industry, and it developed an in-house diamond expertise, which ensures Tiffany's a source of supply, the ability to protect margins and control costs.

Another growth driver is the company entered into a joint venture with Swatch to expand Tiffany's watch business, which May believes will be a huge growth driver.

Unlike other stores which achieve their highest level of sales once they open, Tiffany's stores take years to build up to their maturity, and one third of the company's store base has been built in the past 5 years. May sees significant same-store-sales growth ahead, and operating margin should rise 0.5% per year in the coming years. May concluded by saying the implied value of Tiffany's is north of $100 per share.

Posted-In: Ira Sohn Conference Peter May Trian Fund ManagementLong Ideas Trading Ideas Best of Benzinga

 

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