Tiffany & Co. - Asia-Pacific Continues To Be The Fastest Growing Market

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Tiffany & Co. (NYSE:TIF) in its recent past has been able to consistently achieve good performance. The table below shows some of the results of TIF's performance in the most recent quarter and in its various segments.

The Asia-Pacific market continues to be the fastest-growing market for TIF, boosted by good economic growth in China and other developing markets. Asia-Pacific recorded a growth in net sales of just over 14.5% from last year. The Americas still comprise the largest segment for the company, posting more than 45% of the company's total net sales and more than 30% of the company's net earnings.

Segmental Analysis

Historically the Americas have been the major market for TIF, grasping on average more than 50% of the company's total sales. However, its importance as a segment has somewhat declined over the years with the emergence of a faster-growing Asia-Pacific market. This segment once reported only 12.75% of the company's total net sales, and within a few years grew to contribute more than 21%. In the most recent quarter, the Asia-Pacific segment contributed just over 24% of the company's total net sales.

Despite it being the largest sector, the Americas have consistently underperformed the other segments in terms of profit margins. This is because all the other segments have a high percentage of sales in product categories with the highest average price. Asia-Pacific is the most attractive segment for the company, the segment's sales are primarily contributed by the top two brands of the company: statement and fine & solitaire jewelry (having an average price of $5,500). These brands contributed 23% of the segment's sales, and engagement jewelry and wedding bands (having an average price of $3,800) contributed around 36% of the segment's sales, as compared to 19% and 23% in the Americas.

Asia-Pacific has shown great growth potential in the recent past, boosted by high growth in China, its largest specific market in the segment. The average growth in sales and operating profit for the region over the past four years has been approximately 22% and 23%, respectively. While in the Americas, the average growth rates have been 4.2% and 3.8%. This is not surprising given the sluggish and uncertain economic situation in the region; however, despite such prevalent conditions, the company has continuously grown in the segment, representing an extraordinary resilient demand for luxury products in the market. Asia-Pacific operating margins have continuously seen rapid growth, despite the last year in which rapid expansion and marketing expenses hindered the company's profit margins. However, the margin has slightly improved in the most recent quarter, coming in at around 25%.

TIF's overall comparable store sales growth was recorded at 4% in the most recent quarter, with a similar trend in all the markets except for Asia-Pacific. While the other market segments saw comparable store sales increased by either 3% or 4%, the Asia-Pacific market saw some store sales increase by an amazing 9% on a year-over-year basis in the most recent quarter, evidence that the heavy marketing activities conducted by the company were paying off. As the management has plans to expand further into the segment, this would certainly increase sales and gross margins for the company.

DuPont Analysis

It is evident from the Level 1 breakup of ROE that the source increase in return from 2009 to 2013 has not been through an increase in leverage, but rather an increase in the company's ROA. This can further be broken down, and as can be seen from the Level 3 DuPont analysis of ROE, the company's asset turnover, although increased slightly, has been relatively stable, and similarly its interest burden and tax burden have been stable. The greatest source of return and the one that is directly proportional to its return is the operating margin. Thus, it is crucial for the company to maintain high profit margins in order to sustain its high ROE. The easiest ways to expand its sales of high-margin products are by either promoting it more in the regions where it is not that popular, such as the Americas, or by increasing its presence in regions where the high-margin product categories are preferred by the customers, such as in the Asia-Pacific regions.


In my opinion, it is vital for the company to maintain its high profit margins through either efficiency or increased sales of high-margin product categories. As the company has plans to expand into the more profitable regions, I strongly believe that the company would be able to achieve this crucial objective and maintain its high growth and returns.

Further, with a dividend payout ratio in excess of 30%, the company not only provides an opportunity for high capital gains, but also significant cash returns. Thus, I recommend a strong buy for the company, as it will not only outperform the industry, but will also share a significant portion of the increased profits with its shareholders.

Disclosure: I 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.