Market Overview

Tiffany Has The "Ideal" Quarter

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Tiffany & Co. (NYSE: TIF) continues to sparkle in any environment, no matter if it's cloudy or clear.

The luxury retailer reported better than expected earnings, and raised its full-year outlook, thanks in large part to bridal season, as well as the increased wealth effect felt around the world.

For the quarter ending July 31, Tiffany & Co reported earnings of 86 cents per share on $872.7 million in revenues. Wall Street had been expecting earnings of 70 cents per share on $785.6 million. In addition, the company raised its fiscal year 2011 earnings outlook. It now expects to earn $3.65-$3.75 per share, versus the previous forecast of $3.45-$3.55 per share. Wall Street expects $3.56 per share in earnings.

At the company's flagship store on Manhattan's Fifth Avenue, the company's flagship store, sales soared 41%. The company generates about 10% of its revenues from this store alone. Excluding Japan, where Tiffany's has a large presence, revenues rose 45%.

Michael J. Kowalski, chairman and chief executive officer, said, “We are extremely pleased by these results which confirm the growing global appeal of Tiffany's product offerings. In addition, we have been able to absorb precious metal and gemstone cost increases while improving our gross and operating margins."

Mr. Kowalski said, “Despite continuing economic uncertainty, our strong first half performance gives us ample reason to remain confident about our prospects for the balance of the year. We are encouraged that total worldwide sales growth in the third quarter-to-date is continuing to exceed our expectations due to noteworthy strength in the Americas, Asia-Pacific and Japan, demonstrating, once again, the attraction of the TIFFANY & CO. brand."

Brian Sozzi of Wall Street Strategies was very positive on the quarter. Sozzi noted, "Tiffany (NYSE: TIF) is out this morning with, in all actuality, an abnormally robust second quarter. It's not that we were expecting an acute deceleration in the company's global fortunes as a result of the economic headlines of the second quarter."

As such, shares are soaring in early Friday trading, up nearly 7% on the earnings beat and raised guidance.

Tiffany's has been mentioned fairly frequently in the past few months, both at the Ira Sohn conference, and a recent Goldman Sachs upgrade.

Peter May, of Trian, said that he believes that Tiffany's is ultimately a $100 stock, based on several different factors, and this earnings release does nothing to stray from that line of thinking. The company did say on its conference call it will be raising prices on certain items, to protect their gross margins. Gross margins rose 1.2% this quarter to be 59%.

Back in May, Trian's May forecast that margins would rise, as the company developed an in-house diamond expertise, which ensures Tiffany's a source of supply, the ability to protect margins and control costs. He said that he sees significant same-store-sales growth ahead, and operating margin should rise 0.5% per year in the coming years.

The little blue box has not stopped delivering better than expected results, and the shine on this quarter is nothing short of remarkable. Diamond experts would grade this quarter, "ideal."

ACTION ITEMS:

Bullish:
Traders who believe that Tiffany will continue to deliver might want to consider the following trades:

  • If you believe May is right, and that Tiffany is worth $100, consider going long Tiffany's at these levels.

Bearish:
Traders who believe that Tiffany's run is over may consider alternate positions:

  • Short Tiffany is you believe the global economy is going into a recession. If there is a recession, luxury retailers could see a decline in sales.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Brian SozziEarnings Long Ideas News Guidance Short Ideas Movers Trading Ideas Best of Benzinga

 

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