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Tiffany & Co. (TIF - Analyst Report), the jewelry maker, is required to pay damages of nearly $449.5 million after the Dutch court ruled in favor of Swatch Group, one of the largest watchmakers, over a dispute between the two parties regarding contractual issues. Tiffany will also pay legal fees and other expenses borne by Swatch Group in relation to arbitration that amounts to $8.8 million.

The New York based company and Swatch Group entered into a deal in 2008 to produce watches under the Tiffany brand, and formed Tiffany Watch Co. Ltd. However, a feud between the two companies arose in 2011, following which Swatch Group terminated the agreement citing breach of contract by Tiffany.

Tiffany informed that it will be reviewing its legal options, but added that it has sufficient funds available to pay the compensation. The company would incur charges in the range of $295 million to $305 million during the fourth quarter of fiscal 2013, as a result of the verdict. Consequently, the company trimmed its fiscal year earnings guidance to a band of $2.30 to $2.35 per share from $3.65 to $3.75 per share forecasted at its third-quarter earnings release.

Tiffany posted better-than-expected third-quarter fiscal 2013 results due to the surge in demand in the Asia-Pacific region. The quarterly earnings of 73 cents a share surpassed the Zacks Consensus Estimate of 58 cents and soared 49% from 49 cents in the prior-year quarter benefiting from higher sales and improved operating margin.

The company continues its earnings streak by beating the Zacks Consensus Estimate in the trailing four quarters. The company posted a positive earnings surprise of 25.9% in the third quarter, 12.2% in the second quarter, 32.1% in the first quarter of fiscal 2013, and 2.2% in the fourth quarter of fiscal 2012.

We believe that Tiffany, which competes with Signet Jewelers Limited (SIG - Snapshot Report), Movado Group, Inc. (MOV - Snapshot Report) and Zale Corporation , is well poised to support sales and earnings growth in the long run by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Tiffany’s long-term growth prospects remain encouraging, given its new product launches and focus on enhancing its geographic reach through store expansion program. It remains committed to achieve long-term objectives of at least 15% earnings growth and a 10% to 12% sales increase.

Currently, Tiffany carries a Zacks Rank #2 (Buy).

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