Tiffany Q2 2014: Bling Bling North America

| About: Tiffany & (TIF)
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EPS beat on strength from N. America and fashion jewelry.

Japan saw an ongoing weakness while China is seeing deceleration.

Guidance upbeat, suggesting continued strength from North America.

Tiffany (NYSE:TIF) reported a solid set of Q2 results with EPS of $0.96 handily beat consensus of $0.85 with strength coming out of Americas and its fashion jewelry business. Despite the cautious outlook in both Japan and Europe, management still raised full year EPS guidance to $4.20 - 4.30 compared with the prior guidance of $4.15 - 4.25.

Strength in North America while Asia was weak

Total North America sales were +9% y/y driven by higher ASP. On a constant currency basis, sales were +10% y/y. New products mainly drove the +8% y/y comp sale with some contribution from tourism. Management noted that Latin America and Canada was able to achieve low double digit growth in the Q.

As expected, Asia was a weak spot due to the regional pullback with Japan sales -13% y/y in what I see is the result of the higher sales tax that went effective in April. China saw a +7% y/y increase in comp sales, which is a deceleration from the low double-digit growth rate in Q1.

Fashion jewelry shines

Fashion jewelry was particular strong in the quarter driven mostly by gold jewelry while silver demand was muted. Going forward, I expect the newly introduced T Collection to be accretive to the fashion jewelry segment given its classic and minimalist look which I believe will appeal to the mass consumers.

Outlook positive

Management raised FY14 EPS forecast post quarter and expects worldwide net sale to be up in the high-single-digit percentage. Additional 13 company-operated store will be added along with 4 closings, result in a net of +9 stores with +4 in Asia. Capex to increase to $270m vs $221m due to investment in IT system but free cash is projected at $400m.

Overall, I think it was a solid quarter despite the weakness in Asia. The sales from Americas was a particular surprise and I expect the momentum to continue to offset the soft demand from other parts of the world.

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