I've regarded Tiffany & Co. (TIF) as a kind of bellwether for the luxury segment. As one of the world's leading luxury brands, it tells us a lot about what upscale citizens are thinking and feeling about their economic position. Back in the financial crisis, Tiffany's earnings took a big hit, and it foretold even greater pain in the luxury sector and other parts of the market. If rich folks are nervous about spending, something must be seriously wrong. Conversely, Tiffany was the first brand to recover in the sector, which foretold a broader luxury recovery.
The first apparently good sign from the company's recent earnings report was that same store sales rose 5% in the aggregate in the first half of the year. Domestically, however, comps only rose by 1%. Asia saw blockbuster comps, up 12% in the first half of the year, 11% in Japan, and 6.5% in Europe. In terms of revenue, this all translated to a 7% overall increase, with 2% coming from America, 18% from Asia and 10% in Europe.
Net earnings rose 10% to $190 million, or $1.48 per share for the first half. Gross margins were unchanged, and SG&A increased 6% -- so that revenue increase comes from increased marketing expense. With retail, we must keep an eye on inventories, which increased 4%. As this is in line with revenue increases, that's acceptable.
These numbers are okay, but not great, as far as the US economy is concerned. Obviously, international clients are spending away, but the domestic softness tells me that either people are getting bored with Tiffany, or they are not spending their money on luxury items, or they are not crazy about jewelry right now. Which is it? I want to know if I should be concerned about the economy.
Over at Michael Kors (KORS), results were spectacular. Quarterly revenue up 54%, comps up a whopping 27%, EPS up 79%. Ralph Lauren (RL) results were closer to Tiffany's, however. I'm not encouraged by the disappointing results that came out of Signet Jewelers (SIG), either. Everyone seems excited by the good numbers from Zales (ZLC), but the truth is that the good numbers are more the result of a successful turnaround involving product mix.
What this means is, well, that we're getting mixed messages. From an economic standpoint, people are spending money domestically in the luxury segment. It isn't cratering. Rich folks aren't stuffing their mattresses with the cash. They're spending, but they aren't fighting over diamonds at the mall. In addition, they seem to be exploring different brands - returning to Zales now that Vera Wang has partnered with them, gobbling up Michael Kors' offerings, but maybe forgoing Tiffany's for now while they check into other possibilities.
Overall, then, it looks like we can continue to count on folks in the higher income brackets to keep their segment of the economy afloat. I don't think it means exciting times for Tiffany stock, though. It seems overpriced to me trading at 22x earnings on 10% growth.