Tiffany: Making You Money

| About: Tiffany & (TIF)

Summary

Tiffany & Co. had been struggling for a few years and the stock had been punished.

I called for a buy 6 months ago and the stock has exploded higher making you money.

I discuss the performance of the name and what to do.

Tiffany & Co. (NYSE:TIF) had been struggling for a few years and the stock had been punished. Although I have been interested in the name I never pulled the trigger as my capital has been locked up. But I am always on the lookout for a name that I can make a profit in, and Tiffany may just be offering that chance as it is exploding higher., Remember I called for a buy on dips six months ago and now the data is improving, which means there may be real momentum here. The stock is now at a 52 week high and is still trading at a reasonable multiple, offering a decent yield of 2.2% and has a growth story that is still intact. Longer term, I like the name as the economy continues to chug along.

While there is still some weakness, the company is demonstrating that it is still a strong, profitable company. So how was the just released Q3 report? In short, the company's third quarter was better than I expected. It did of course beat on the top and bottom lines. It saw global net sales rise 1.2% year over year to $949 million. If you take into account currency issues (i.e. stronger dollar), sales were about even from last year. This may not sound all that positive but sales had been declining year-over-year for some time, so this is a win. However comparable store sales fell 2% on the back of softness is several product categories. There was also some weakness in consumer spending and declines in tourist settings. Still, revenues beat expectations by a strong $23 million. On top of that net earnings rose 5% to $95 million, or $0.76 per share from the $91 million, or $0.70 per share, in last year's third quarter. Income per share was a strong beat of $0.09 versus estimates.

Despite some of the sales pressure, the company saw gross margin expansion. Gross margin came in at 61.0 % versus 60.2% in Q3 2015, The increase reflects favorable product costs and price increases globally across all product categories and regions. There was also changes in the product mix which benefited the quarter. While selling and administrative expenses rose due to marketing and labor costs, the tax rate was down about 1 percentage point year-over-year.

Digging deeper into the regional data we find where there is strength and where there is work to be done. In the American region, total sales dropped 2% on a constant dollar basis to $417 million. Comparable store sales fell 2% as well. In the Asia-Pacific region, total sales spiked 4% to $247 million but comparable store sales dropped off 7%. There was double-digit sales growth in China, and growth in Korea. It is also important to note that there was a decelerating rate of sales decline in Hong Kong, but continued sales declines in Australia and Singapore. Japan saw higher sales on an absolute basis of 13 % but on a constant dollar basis total sales fell 4% to $150 million. In Europe, total sales (on a constant dollar basis) fell 2% to $104 million and comparable store sales dropped off 7%.

Obviously, this data is not perfect. There is still clear weakness regionally but the fact is that sales are turning around. This could be in large part due to a stock market at all-time highs. It could be due to the economy continuing to move along at 1-2% growth. However, the trend in sales declines is not going to last forever. The company is a quality name and the stock has momentum. While the fundamentals are certainly weaker than we would like, the fact is the stock is moving with positive action. When I called for a buy six months ago much of the weakness was priced in. Despite the sales data, the company is also flush with cash. Cash, cash equivalents and short-term investments were $787 million at October 31, 2016 versus $725 million a year ago. Short-term and long-term debt represents 38% of stockholders equity, about the same as a year ago. What is more the company is shareholder friendly. The company repurchased 455,000 shares at an average cost of $68 per share. It also pays a dividend that yields a healthy 2.2% on top of the buybacks. While the company has a lot of work to do the stock has momentum and I remain positive on the name.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles, which are time sensitive, actionable investing ideas. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.