Tiffany Q2 '14 Preview: Brace For Impact

Aug.24.14 | About: Tiffany & (TIF)

Summary

TIF will report 2Q14 on Wednesday before market.

Consensus expects $0.85 EPS on $998m in revenue.

Weak read-through from Asia is a cause of concern but long-term thesis remains.

Tiffany (NYSE:TIF) will report 2Q14 results on Wednesday before market opens with a conference call scheduled at 8:30am. The detail of the call to listen is by dialing 800-289-0468 (within the U.S.) or 913-981-5571 (outside the U.S.) and passcode 7635206.

Consensus expects $0.85 EPS (vs. $0.83 a year ago) and $988m in revenue (+7% y/y). The stock has been up 13% over the past six months, outperforming the broader S&P 500, although it is worth noting that share price has been stagnant over the past three months.

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I am slightly cautious heading into the quarter given the weak read-throughs from Asia over the past several months. However, my long-term thesis on Tiffany remains that the company has the right business mix and is the main beneficiary of lower price elasticity of the high-end consumers. In addition, Asia has the potential of becoming a long-term driver on rising brand awareness and emerging wealth.

Weak read-through from Asia

Evidence of a broad weak demand for luxury good is a cause of concern judging by the weak Hong Kong watch and jewelry sale that saw on average 31% decline in Q2.

I note that Chow Tai Fook (OTCPK:CJEWY) saw its Q1 SSSg down 40% y/y on 32% decline in volume, and retail sale value down 32%. HK/Macau was the biggest drag (-50% y/y) and China was -28%. While I acknowledge that the part of the decline was due to the higher base from last year (favorable gold pricing), I am still cautious in that the weak demand could spill over to the entire high-end jewelry sector.

When looking at the results from global luxury brands such as LVMH (OTCPK:LVMUY), Prada (OTCPK:PRDSY), Kering (OTCPK:PPRUY) and Hugo Boss (OTCPK:BOSSY), it is evident that Asia is likely to remain challenged in the near term. LVMH acknowledged that its business in Hong Kong has slowed down noticeably in Q2 and Prada saw weakness across Hong Kong, Korea and Singapore. Hugo Boss pointed out that China's current anti-graft campaign has significantly impacted its gifting business and store traffic. Finally, Kering saw slowdown across Southeast Asia, driven by weakness in Singapore.

Conclusion: While I am positive on Tiffany's long-term growth story, the near-term read-through from Asia could have negative impact on the share price, but I view any pullback a good buying opportunity.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.