Should Investors Fall Out of Love With Tiffany?

With shares of Tiffany & Co. (NYSE:TIF) trading at around $70.31, is TIF an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Tiffany has 275 stores around the world. Here are their locations:

  • 115 in the Americas
  • 66 in Asia-Pacific
  • 55 in Japan
  • 34 in Europe
  • 5 in the United Arab Emirates

Tiffany is diversified geographically. It’s also important to note that 275 stores isn’t a lot. Therefore, there’s a lot of room for growth. However, is this the right time to aim for growth? We’ll get to that soon. For now, let’s look at some positives and negatives for Tiffany.

Positives:

  • Strong brand
  • High-priced products that sell
  • Beat expectations last quarter
  • Strength in Asia, Americas, and Europe (the latter is rare in any industry)
  • New collection launches performing well
  • Consistent annual revenue growth
  • Tiffany expects FY2013 EPS of $3.43 to $3.53.

Negatives:

  • Shrinking gross margin
  • Increased marketing costs
  • Earnings setback in 2012
  • Had missed expectations four consecutive quarters prior to last quarter

Tiffany also operates online, which is essential in today’s world. But Tiffany’s online presence has weakened over the past two years. In late 2011, it had a global traffic ranking in the top 5,000. However, it now has a global traffic ranking of 11,616 (and a U.S. rank of 4,942). This is a significant drop, but it could be looked at two ways. It could be looked at as a positive because it shows that there’s a lot of room for growth online. But it could be looked at as a negative because it shows that Tiffany is doing a poor job with its online presence.

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For example, over the past three months, page views have declined 21.83 percent, page views-per-user have declined 4.9 percent, and the bounce rate has increased 4 percent (bounce rate measures how many people visit one page and leave the site). The only good number is time-on-site, which has increased 1 percent. This isn’t an overly impressive number, but it at least indicates that the site’s content is interesting. Tiffany needs to make a better effort getting visitors to the site…

Let’s get to some comparative numbers. The chart below compares fundamentals for Tiffany, Coach (NYSE:COH), and Michael Kors Holdings Limited (NYSE:KORS). Tiffany has a market cap of $8.96 billion, Coach has a market cap of $14.45 billion, and Michael Kors has a market cap of $10.86 billion.

TIF

COH

KORS

Trailing   P/E

21.70

14.19

31.89

Forward   P/E

17.72

12.46

22.20

Profit   Margin

10.97%

21.31%

17.31%

ROE

16.78%

53.18%

52.35%

Operating   Cash Flow

$328.29 Million

$1.22 Billion

 $247.11 Million

Dividend   Yield

1.80%

2.30%

N/A

Short   Position

9.60%

5.50%

2.90

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

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E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Tiffany is weaker than the industry average of 0.20, but it’s not cause for concern.

Debt-To-Equity

Cash

Long-Term Debt

TIF

0.37

$506.20 Million

$959.27 Million

COH

0.01

$858.66 Million

$22.71 Million

KORS

0.00

$405.78 Million

$0

 

T = Technicals Are Strong

Tiffany has outperformed Coach and Michael Kors year-to-date.

1 Month

Year-To-Date

1 Year

3 Year

TIF

1.71%

23.13%

8.09%

46.23%

COH

2.08%

-6.74%

-29.22%

25.61%

KORS

-5.89%

5.82%

23.80%

N/A

 

At $70.31, Tiffany is trading above all its averages.

50-Day   SMA

67.71

100-Day   SMA

64.10

200-Day   SMA

61.82

 

E = Earnings Have Been Steady           

Revenue has consistently improved on an annual basis. Earnings were consistently improving on an annual basis until a moderate setback in 2012. Tiffany expects to get back on track in 2013.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

2.85

2.71

3.09

3.64

3.79

Diluted   EPS ($)

1.74

2.11

2.87

3.40

3.25

 

Looking at the previous quarter on a year-over-year basis, there were improvements in revenue and earnings.

1/2012

4/2012

7/2012

10/2012

1/2013

Revenue   ($)in   billions

1.19B

819.17

886.57

852.74

1.24B

Diluted   EPS ($)

1.38

0.64

0.72

0.49

1.40

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

High-end consumers have continued to spend in this difficult environment, which is why companies like Tiffany have continued to perform well. However, if we enter a deflationary environment, then revenue and earnings will suffer.

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Conclusion

Tiffany is a strong company that caters mostly to the high-end consumer. This should mean that it would have the potential to withstand a weakening economy, but if the stock market suffers a steep correction, then many high-end consumers will do poorly with their investments, which would then lead to less discretionary income to spend at Tiffany.

After strong earnings from several large companies this morning, the market will likely move higher, which means near-term upside potential for Tiffany. However, downside risks outweigh upside potential over the next year.

Tiffany is a STAY AWAY.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.

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