Tiffany's Reports Sales Declines

| About: Tiffany & (TIF)
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Tiffany’s (NYSE:TIF) reported better than expected 4th quarter earnings and the stock is getting a nice double digit percentage bounce. Excluding one-time items, the Street had pegged Tiffany’s to report $.80 in profits after a horrendous holiday shopping season; however, the company came in a nickel better than those estimates. However, the result received a lukewarm reception from the team on CNBC’s Squawk on the Street,

“As far as Tiffany’s goes, good numbers, but bear in mind what’s been going on. 20% decline in global sales. 34% decline in U.S. same-store sales. They did beat the greatly reduced number.”Ockham historical valuation TIF

The 4th quarter is, of course, particularly important because it includes the holiday shopping season and usually accounts for more than a third of the company’s profits. Tiffany’s has exceeded earnings expectations five of the last six quarters, which seems to suggest that analysts underestimate Tiffany’s ability to sell in a tough consumer spending market. However, the declines in sales are serious and a real cause for concern.

Tiffany’s has been successful at focusing more retail efforts at cheaper products to match consumer’s shrinking buying power. However, the company's management stressed that the trend towards cheaper products should not hurt the margins; as the company’s CFO Jim Hernandez stated, “We did and will continue with our full-price philosophy in order to maintain appropriate margins and, very importantly, to maintain the integrity of the Tiffany & Co. brand.”

While we think that TIF is Undervalued over the long term, there is a real concern about owning a premium stock such as this right now. In January, we wrote (Tiffany’s U.S. Customers Battening Down the Hatches) that Tiffany’s is one of the better jewelry retailers to own, but there are a lot of stocks that are more attractive right now. Going forward, Tiffany’s maintained its sales outlook but lowered its full year profit outlook. Tiffany’s may be a great value buy, if you believe that consumers will spend again like the old days during the 2009 holiday season, which would likely exceed the downbeat expectations Tiffany’s offered. Otherwise, we would stay away in favor of a company less tied to luxury.

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