Wednesday, May 25, 2011

Tiffany & Co. (NYSE: TIF): Q1 Earnings Preview 2011

Tiffany & Co. (NYSE: TIF), the world's second-largest luxury jewelry retailer, is scheduled to release its first-quarter earnings before the opening bell on Thursday, May 26, 2011. Analysts, on average, expect the company to report earnings of 57 cents per share on revenue of $703.32 million. In the year ago quarter, the company reported earnings of 48 cents per share on revenue of $633.59 million.

Tiffany & Co., through its subsidiaries, engages in the design, manufacture, and retail of fine jewelry. The company also sells timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. 

In the preceding fourth-quarter, the New York-based company's net income was $181.22 million, or $1.41 per share, compared to $140.37 million, or $1.10 per share, in the year-ago quarter. On an adjusted basis, the company earned $1.44 a share in the fourth quarter. Revenue rose 12% to $1.10 billion from $981.38 million. Analysts, on average, had expected the company to report earnings of $1.39 per share on revenue of $1.1 billion. 

At its last earnings call in March, the company cut its first quarter earnings outlook. Tiffany said that it now expects earnings to be approximately 57 cents per share, lower than previous forecast of 62 cents per share. The $0.05 per share reduction in earnings forecast reflects a 15 percent anticipated decline in Japan sales due to the recent tragic events in that country. 24% of its 233 stores around the world are in Japan. However, worldwide sales for the quarter are projected to rise 11 percent.

For the year ending January 31, 2012, the company expects net earnings, excluding nonrecurring items, to increase by 14 percent to 18 percent to $3.35 - $3.45 per share on worldwide net sales growth of 12 percent to 14 percent.

Tiffany is well-positioned to capture the rising tide in the global standard of living.. Tiffany holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach. The company now plans to expand its distribution network by adding stores in both the new and existing markets. Over the next five years, the company plans to open upwards of 20 new stores in China to go along with six in the Americas and three in Europe.  The economic emergence of China and India has filled the pockets of each country's middle class with disposable income. An appetite for luxury has accompanied this newfound affluence, helping the sector by providing new rapidly growing markets to take advantage of. The company has also been concentrating more on smaller-sized store formats that offer selected collections of lower-priced, higher-margin products.

However, there are several headwinds that are a cause for concern. The fallout of the natural disaster in Japan has had a huge impact on the mentality of Japanese consumers.Another concern for the sector is rising commodity costs. While the sector has an untypical ability to pass costs along to its consumers because of the discretionary nature of its products, its margins will be pressured in the short-term.

Full Disclosure: None.
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