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Tiffany (TIF) Up 7.4% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Tiffany & Co. (TIF - Free Report) . Shares have added about 7.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is TIF due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Tiffany Delivers Solid Q1 Earnings, Raised View

Tiffany & Co. reported first-quarter fiscal 2018 results, which marked the company’s eighth and fourth straight quarter of positive earnings and sales surprise, respectively. Moreover, top and bottom lines improved year over year. The solid results also called for an upbeat outlook for fiscal 2018.

Q1 Highlights

The company’s quarterly earnings came in at $1.14, which comfortably beat the Zacks Consensus Estimate of 84 cents. The bottom line surged more than 50% year over year, courtesy of higher sales, greater operating margin and reduced effective tax-rate.

Net sales came in at $1,033.2 million, up almost 15% from $899.6 million in the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate of $960.7 million. Notably, the top line gained from sales improvement across all product categories and most regions. Also, the company’s comparable-store sales (comps) went up 10%. In constant currencies, worldwide net sales rose 11% and comps inched higher by 7%.

Let’s Delve Deeper

By geographic segments, sales in the Americas rose 9% to $425 million, while comps increased by an equivalent rate. In the Asia-Pacific region, sales improved 28% to $329 million, while comps grew 14%. In Japan, sales went up 17% to $151 million, while comps jumped 14%. Sales in Europe came in at $107 million, up 13% and comps rose 2%. However, other sales came in at $22 million, down 21%.

Gross margin expanded 90 basis points to 63% in the quarter under review, on the back of sales leverage on fixed costs, along with decline in diamonds wholesale sales. Operating margin increased 320 basis points to 19.8%, courtesy of improved gross margin and sales leverage on SG&A costs.

Store Update

In the first quarter, this designer and retailer of fine jewelry opened one company-operated store and shuttered two locations. As of April 30, 2018, the company operated 314 stores (123 in the Americas, 87 in Asia-Pacific, 54 in Japan, 46 in Europe, and four in the U.A.E.). Management now anticipates gross retail square footage growth of 2% on the back of eight openings, 15 or more relocations and two closings.

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $1,211.9 million and total long-term debt of $882.9 million.

In the quarter, the company repurchased approximately 407,000 shares at an average cost of about $99 per share. Concurrently, management announced a new share repurchase plan, which authorizes buybacks worth up to $1 billion. This program will replace Tiffany’s existing buyback plan that was announced in January 2016. Also, the new program will terminate on January 31, 2022. The company incurred capital expenditures of $37 billion during the quarter.

For fiscal 2018, management expects net cash from operating activities of roughly $700 million, free cash flow of at least $400 million and capital expenditures of roughly $280 million.

Other Developments & Guidance

Management remains impressed with the solid start to the year and remains focused on delivering sustainable improvements in comps, operating margin and earnings. The company plans to achieve this by working on its six strategic initiatives.

To this end, Tiffany remains focused on evolving its brand, enhancing omnichannel experience, solidifying position in core markets, increasing operating model efficiency and enriching overall organization. The company remains committed to elevating in-store experience and replenishing product portfolio. Focus on renewing product portfolio is evident from recent launch of PAPER FLOWERS, which comprises solid collection in diamonds and platinum.

Management also revealed intentions to increase investments in various areas from second quarter onward, in a drive to reach its long-term growth potential. This is expected to lead to a considerable rise in SG&A costs in fiscal 2018. Consequently, operating margin is expected to decline from the year-ago level, though improved gross margin on account of leverage on fixed costs and lower diamond costs is expected to provide some respite.

Raised FY18 View

Nevertheless, management now anticipates fiscal 2018 net sales to increase by a high-single-digit percentage on a reported and constant-exchange-rate basis. The guidance reflects an improvement from a mid-single-digit percentage increase expected earlier.

Comps for the fiscal year are now expected to rise mid-to-high-single-digit, up from low-to-mid-single-digit projected earlier. Consequently, management raised its net earnings per share guidance. Net earnings per share are now envisioned in a range of $4.50-$4.70, compared with the prior range of $4.25-$4.45.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower.

Tiffany & Co. Price and Consensus

 

VGM Scores

At this time, TIF has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise TIF has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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