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The majority (75%) of Tiffany & Co's (NYSE:TIF) revenue is generated in the US and Japan. TIF has very limited exposure to China and India; hence, both growth countries are not factors. Based on average Chinese wages being $330 per month, coupled with current growth rates, it will take at least a decade before TIF can look at China as a potential marketplace.

We still can not figure out why the EU is off TIF's map. Latin America, Canada and Europe combined account for less than 23% of sales. Little Switzerland (2002 acquisition) has little to do with Switzerland and is based in the Caribbean.

Traditionally, fiscal Q4 accounts for 34% to 38% of sales with fiscal Q2 being TIF's second strongest quarter (FY ends January). Recent share price behavior is reminiscent of the 2003 steep climb. What ensued in 2003; when fiscal Q1 FY2004 was reported, there was a sharp PE correction to the downside.

In 2003, the stock traded down from $48 to $28 within six months. We do not foresee a low of $28; however $34 is not unthinkable. The difference between the two years is that share price fluctuations in 2003 were in expectation of a strong Q4 and 2007 is in reaction to a strong Q4. The rest is the same.

The recent run-up in TIF's share price assumes a stronger than anticipated FYQ1. We do not anticipate 15% YOY revenue growth and suspect that when TIF reports 6-7% YOY growth in May, there will be a steep share price correction.

The same pattern occurred in 2001, 2002, 2003, 2005 and 2006. Only 2004 was the exception to the rule due to the launch of Iridesse stores in the U.S. and rumors that never materialized.

Estimated EPS for FY2008 is $1.93 and we will have to wait and see if same store sales remain stagnant in Japan before calculating FY2009.

TIF is a rollercoaster stock. Enjoy the ride!

TIF 1-yr chart
TIF

Disclosure: No conflicts.

Source: Tiffany & Co: Just Follow the Sales