Even in 2012 the disastrous holiday season continues to hit retailer's shares hard. After the recent profit warnings of BestBuy (BBY) and Sears (SHLD), it was Tiffany's (TIF) turn Tuesday. The world's second-largest jewelry chain warned that it would have to lower its full-year guidance from $3.70-$3.80 a share towards $3.60-$3.65 as volatile markets have led to a slowdown in key markets such as Europe and the US.
Not surprisingly, the stock was down over 10% in a generally strong market, closing at $60 a share.
Terrible holiday quarter
The lowered guidance still implies 23-25% earnings per share growth compared to 2010, resulting in a price-earnings ratio of about 17. The problem is that the first 3 quarters of 2011 imply earnings of 1.35-$1.40 for the holiday quarter, down from $1.44 last year. While annual growth is still impressive, year-on-year profits for the important holiday season are down, raising red flags for profits in 2012.
Why the drop is justified
At first sight the 10% drop in the share price seems hardly justified given the slight earnings revision, however:
1. It was only 6 weeks ago when Tiffany raised its earnings guidance, showing lack of visibility and a dramatic reversal in its key markets
2. Despite a 15% hike of the dividend earlier this year, the annual dividend rate of $1.16 only implies a dividend yield of 2% (even after today's drop)
3. Earlier yesterday competitor Signet Jewelers (SIG) gave a profit warning as well, implying a general industry slump
4. Despite a lack of growth (cumulative revenue growth of 6% over the last four years) the stock trades at a full valuation, despite the dramatic start of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.