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Tiffany & Co. (NYSE:TIF) reports fiscal Q2 earnings before the bell on Monday morning, August 27. Analyst consensus is currently expecting $0.74 in earnings per share on $892 million in revenues for expected year-over-year growth in revenues of 2%, but a decline earnings per share of 14%.

The stock has fallen from a high of over $80 in July '11 to a recent double-bottom in late June, early July of the low $50's, based primarily on the following issues:

1.) Raw materials costs have risen pressuring margins;

2.) The U.S. flagship store in New York does a sizable amount of business from tourists, and that business has slowed, particularly from Europe. U.S. sales comparisons (i.e. comp's) were flat in the first fiscal quarter, when the Street was expecting 5%.

3.) In the fiscal first quarter, ended April, TIF lowered earnings per share guidance $0.25 to a range of $3.70 - $3.80, based on the "slower global sales outlook."

In a nutshell, both the top-line has been pressured by weaker global economies, and commodity cost pressure from gold, silver, platinum, etc., have squeezed the middle of the income statement.

We are not long the stock but I am watching Coach (NYSE:COH) and Tiffany as they struggle with the current macro environment.

Following is the trend in TIF's fiscal 2013 (ends Jan '13) and Fiscal 2014 earnings estimates over the last 12 months:

  • Aug 22 '12: $3.65 and $4.18 (pre-earnings)
  • July 31 '12: $3.67 and $4.21
  • Apr 30 '12: $3.98 and $4.56
  • Jan 31 '12: $3.96 and $4.56
  • Oct '31 '11: $4.18 and $4.77
  • Aug 31 '11: $4.22 and $4.83

As the reader can quickly tell, pressure remains on the earnings estimates from continued downward revisions by analysts.

However, TIF has something to cheer about: with this July quarter report, TIF will start lapping easier comps for the remainder of calendar 2012 and with the April report, which was somewhat surprising, both Japan's and Europe's comp's, came in better than expected, albeit still at low levels, which could point to a bottoming of expectations. Also, the raw materials headwinds (cost pressures) are expected to abate going into the 2nd half of calendar, 2012.

Most analysts value TIF in the high $50's, low $60's or about where the stock is trading currently, thus a potential investor or even trader isn't getting much of a risk-reward at the current price level.

At $59 per share, TIF is trading at 16(x) and 14(x) fiscal 2013 and 2014 earnings estimates for expected growth this year and next of 1% and 14% respectively.

There is something else that worries me about TIF too: the retailer used to be a prodigious cash-flow generator, well over $1 billion on a 4-quarter trailing cash-flow basis, but that has dwindled to less than $100 as of the April '12 quarter, and free-cash-flow has not been positive on a 4-quarter trailing basis since October, 2010. (We typically use 4-quarter trailing cash-flow numbers for all companies, but it becomes particularly helpful for a retailer like TIF since the January quarter each year generates such a large percentage of their 12-month business.)

The key positive for TIF is that this remains a world-class brand, with a major retail presence in Japan, Europe and the U.S., so at some point this retailer becomes a great value. However i like it better in the $40's and even better in the low $40's, and it might not get there.

Source: Tiffany Earnings Preview: A Beat-Down In Luxury Retail