Back to top

Image: Bigstock

Tough Time for Retail Jewelry Stocks, Tiffany Breaks the Mold

Read MoreHide Full Article

Jewelry has long been an item of fascination for women. However, the sparkle and glitter of gems is not enough, when it comes to the financial world. Instead, investors actually look at several other things such as fundamentals, past performance, along with the broader economic factors, all of which play a crucial role in their investment decisions.

Retail-Jewelry Store industry, which currently occupies bottom 7% (246 out of 265) position among the Zacks Classified industries, has not been a spectacular performer. So far this year, the industry has declined 2.2%, while the Zacks categorized Retail-Wholesale sector and the S&P 500 Index has witnessed a gain of 17.4% and 10%, respectively. The industry has been grappling with waning store traffic, stiff competition from online retailers and unwillingness of consumers to spend exorbitantly on discretionary items.

So far in the year, jewelry stocks like Signet Jewelers Limited (SIG - Free Report) and Movado Group, Inc. (MOV - Free Report) have declined 38% and 21%, respectively. Meanwhile, Tiffany & Co. has done exceptionally well with shares gaining 19.2%.

Why is Signet Losing Sheen?

Signet Jewelers’ bearish run in the bourses can primarily be attributed to 10th straight quarter of top-line miss, dismal same-store sales and muted outlook. This Zacks Rank #5 (Strong Sell) stock has indicated that lower spending on jewelry has been hampering its performance, quite evident from its first-quarter fiscal 2018 results, wherein  both the top line and bottom line lagged estimates and declined year over year.

No wonder, management reiterated its bleak outlook for fiscal 2018. The company expects same-store sales to decline in the range of low to mid-single digit. In fiscal 2017, same-store sales had declined 1.9%. Further, it anticipates earnings per share between $7.00 and $7.40 for the current fiscal year, in comparison with fiscal 2017 figure of $7.45.

Disappointing results and the murky outlook were enough to trigger a downtrend in the Zacks Consensus Estimate. In the past 30 days, the Zacks Consensus Estimate for the second quarter and fiscal 2018 has declined by 9 cents and 33 cents to $1.11 and $6.77, respectively.

Why Movado Lacks Lustre?

Another stock, which is still struggling to make its way out of the woods, is  Movado Group. Investors remained concerned about this Zacks Rank #4 (Sell) company whose top and bottom lines have been declining. Despite its focus on cost containment, the company’s earnings in first-quarter fiscal 2018 missed the Zacks Consensus Estimate by a wide margin of 90% and also plunged 94.7% year over year. In the first, second, third and fourth quarter of fiscal 2017, the company’s bottom-line declined 24%, 46%, 1.1% and 45%, respectively. The top line, which has declined in the all the four quarters in fiscal 2017, witnessed a fall of 13.2% in first-quarter fiscal 2018.

In fiscal 2018, Movado anticipates net sales in the range of $515–$530 million, down from the fiscal 2017 and 2016 net sales of $552.8 million and $594.9 million, respectively.

Why Tiffany Continues to Sparkle?

While Signet and Movado have succumbed to industry headwinds, Tiffany appears to be a lone fighter. Tiffany’s omni-channel platform, store expansion plans, tapping of new markets and venturing into new revenue generating areas has facilitated it to outperform the industry. Tiffany is well positioned to augment its top and bottom-line performance in the long run by leveraging capital investments made in the last several years in distribution, manufacturing and diamond sourcing processes. The company is also looking at other revenue generating avenues, and this includes expansion of watch business.

Tiffany had earlier notified that its long-term objective is to attain ROA of at least 10% and ROE of at least 15%. Additionally, this Zacks Rank #3 (Hold) company delivered fourth straight quarter of positive earnings surprise, when it posted first-quarter fiscal 2017 results.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tiffany, Signet & Movado Scorecard

    Parameters

     Tiffany

     Signet

    Movado

Earnings Growth F1

     4.8%

     -9.0%

    -11.6%

 Sales Growth F1

     1.5%

      -3.4%

     -6.2%

ROA (Return on Asset)

     9.3%

       7.5%

      5.4%

ROC (Return on Capital)

     12.4%

      11.3%

      6.6%

Debt/Equity

     28.6%

      41.6%  

      5.4%

  Source: Zacks.com

From the above table it is evident Tiffany looks to have a clear advantage, in terms of fundamentals, past and future performance. However, the catch here is that both Signet and Movado have the advantage of being a smaller entity with more scope for market share growth if they set their strategies right.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors

Click here for Zacks' scret trade>>


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


Signet Jewelers Limited (SIG) - $25 value - yours FREE >>

Movado Group Inc. (MOV) - $25 value - yours FREE >>

Published in