Don't be a Bull in the China Shop with Tiffany & Co.

Tiffany & Co. on the surface had the quarter that most on the Street expected, generally strong. However, those that actually pay attention to the news and visit stores outside of the NYC flagship were well aware that not all aspects to Tiffany's third quarter were going to be sterling, which coupled with a holiday quarter outlook that was destined to be soft, would whack the stock. Alas this is exactly what happened, concerning spots in the quarter and guidance that suggests those concerning spots will widen into holes during the holidays. Areas of focus for me are many, but they arrive at the same conclusion…don't be a bull in the China shop now that Tiffany is valued cheaper than it was yesterday. Same-store sales growth constant currency moderated in all reportable countries, and serves as one part of the explanation for the cautious guidance on the holiday quarter (the other ingedient is juiced up consensus forecasts). Key to the entire debate on the stock was the sharp sequential slowdown in same-store sales out of Europe and gross margin deterioration (“primarily” due to a mix shift, which means there are other factors such as resistance by non-tourists to ever higher price points). Since hitting a 24% growth rate in the third quarter of 2010, same-store sales for Tiffany's European business have moderated each quarter. If you ever wanted to see an example of EU sovereign debt “contagion” look no further than Tiffany's quarter and same-store sales run rate in Europe. No positions.