Analyst's Early Reaction To Tiffany's Earnings: 'Better Than Feared'

Tiffany & Co. TIF reported second-quarter that were "better than feared," Oppenheimer analyst Brian Nagel told CNBC.

What Happened

Tiffany's second-quarter numbers were mixed as the company reported an EPS beat but revenue fell short of estimates. A closer look at the report signals Tiffany has a "real problem" as the company is seeing weaker sales to foreign tourists -- especially Chinese tourists visiting New York City, Nagel said.

Inventory ended the quarter 3% higher on a year-over-year basis, but Nagel said this shouldn't be viewed as "problematic." The rise in inventory could be a function of storing large number of new items ahead of product launches.

Why It's Important

Tiffany's core business model is to cater to tourists with a large presence not only in the Big Apple but in Paris and elsewhere, the analyst said. Management deserves credit for evolving its business model away from capturing Chinese tourist dollars oversees and meeting the consumer in mainland China.

Nagel said Tiffany's current sales in China grew at a double-digit rate in the quarter but wasn't large enough fully offset the loss in tourist related revenue. However, it does signal the Tiffany brand is resonating well in the country and isn't the victim of any nationalistic backlash from the U.S.-China trade war.

Tiffany's management maintained its prior full-year outlook and this may have been a "mistake" by not taking a more cautious stance in the back half of the year, the analyst concluded.

Tiffany's traded higher by 1.3% to $83.66 per share at time of publication.

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