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Tiffany & Company (TIF - Analyst Report), a high-end jewelry designer, manufacturer and retailer, posted lower-than-expected first-quarter 2012 bottom-line result. The disappointment reflected dismal performance in the Americas region due to soft demand for jewelry. Given the weaker-than-expected results and sluggish economic recovery in most of the countries, management trimmed its fiscal 2012 outlook.
In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Tiffany reported its first-quarter 2012 results on May 24, 2012. The quarterly earnings of 64 cents a share missed the Zacks Consensus Estimate of 69 cents, and dropped from 67 cents earned in the prior-year quarter. Despite registering a growth in the top line, the company witnessed a drop in the bottom line due to a 10% rise in the cost of sales and an 11% increase in selling, general and administrative expenses.
Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Snapshot Report) and Zale Corporation (ZLC - Snapshot Report), posted net sales of $819.2 million during the quarter, up 8% from the prior-year quarter, on the heels of healthy performance of stores in the Asia-Pacific and Japan regions, comparable-store sales growth and new collection launches.
Total revenue came ahead of the Zacks Consensus Estimate of $818 million. Comparable-store sales climbed 4% in the quarter under review. In constant currencies too, net sales jumped 8% and comps grew 4%.
(Read our full coverage on this earnings report: Tiffany Misses, Trims Outlook)
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that the majority of analysts were unidirectional following Tiffany’s results.
In the last 7 days, 10 out of 16 analysts covering the stock lowered their estimates, whereas only 1 analyst raised the same for the second quarter of 2012. For the third quarter, 11 analysts revised their estimates downward and none made upward revision.
For fiscal 2012 and 2013, 15 and 11 analysts, respectively, revised their estimates in the downward direction in the last 7 days, and none increased the same.
What Drives Estimate Revisions
Clearly, a negative sentiment is palpable among most of the analysts, who remain pessimistic on Tiffany’s performance. Following the earnings release, the Zacks Consensus Estimates have been portraying a downward trend with the majority of analysts remaining bearish on the stock.
The lower-than-expected bottom-line results and a dismal guidance failed to impress the analysts, who went on to make downward revisions to their estimates in order to better align with management’s guidance range.
Tiffany now projects fiscal 2012 earnings in the range of $3.70 to $3.80 per share, down from $3.95 to $4.05 forecasted earlier, reflecting an increase of 3% to 6%. Earlier, the company had projected earnings growth of 10% to 13%. Moreover, management’s projection of earnings decline in the third and second quarters also kept analysts on the back foot.
Further, analysts’ confidence also fell because of total net sales growth forecast of 7% to 8% for fiscal 2012 that was down from 10% predicted previously, reflecting a soft macroeconomic environment and tough year-over-year comparison in the second and third quarters.
Tiffany did register a growth in the top line during the quarter, but the increment was not enough to instigate a sense of confidence among the analysts. However, what gave some respite to the analysts was the company’s commitment to achieve its long-term objective of a 10% to 12% sales increase and at least 15% earnings growth annually.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimate for the second quarter of 2012 dropped by 5 cents to 80 cents a share in the last 7 days. For the third quarter, the Estimate fell 6 cents to 69 cents a share.
For fiscal 2012 and 2013, the Zacks Consensus Estimates slipped 27 cents and 23 cents to $3.71 and $4.36, respectively, in the last 7 days.
Holds Zacks #3 Rank
Currently, Tiffany holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. Moreover, we have a long-term ‘Neutral’ recommendation on the stock.
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education