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Tiffany & Co. (TIF)

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We recently downgraded our recommendation on Tiffany & Co. (TIF) to Underperform following its lower-than-expected third-quarter 2012 results. The quarterly earnings of $0.49 per share missed the Zacks Consensus Estimate of $0.63, and dropped sharply from $0.70 earned in the prior-year quarter.

The disappointing result was due to shriveled gross margin and higher tax rate, apart from difficult year-over-year comparisons. Net sales of $852.7 million also fell short of the Zacks Consensus Estimate of $858 million. Given the weaker-than-expected results and sluggish economic recovery in most of the countries, management trimmed its fiscal 2012 outlook.

Tiffany expects total net sales growth of 5% to 6% for fiscal 2012, down from 6% to 7% predicted previously. Operating margin for the fiscal year is also expected to contract. Moreover, gross margin in the fourth quarter is expected to be lower than the prior-year quarter.

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