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Tiffany (TIF) Up 6.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Tiffany (TIF - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tiffany 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 Q2 Earnings Surpass Estimates, Revenues Miss

Tiffany & Co.'s second-quarter fiscal 2019 earnings per share topped the Zacks Consensus Estimate. This was the second straight quarter when the company’s bottom-line surpassed the consensus mark. However, the top line fell short of the consensus estimate for the fourth successive quarter. Moreover, both net sales and earnings per share decreased year over year. Also, margins remained under pressure.

Nonetheless, Tiffany retained fiscal 2019 view and added that it is trying all means to position itself amid headwinds related to sluggish demand from foreign tourists, adverse currency fluctuations and disruptions in Hong Kong.

Tiffany remains focused on evolving its brand, enhancing omni-channel experience, solidifying position in core markets and augmenting operating model efficiency. The company remains committed to elevating in-store experience and replenishing product portfolio.

Q2 Highlights

The company reported quarterly earnings of $1.12 per share that beat the Zacks Consensus Estimate of $1.05 but fell roughly 4% from the year-ago period. Lower operating margins and higher effective tax rate hurt the bottom line. However, decline in SG&A expenses and share repurchase activity provided some cushion.

Net sales came in at $1,048.5 million, down 3% from $1,075.9 million in the prior-year quarter. The reported figure came below the Zacks Consensus Estimate of $1,067.5 million. Also, the company’s comparable sales (comps) declined 4%. In constant currencies, worldwide net sales decreased 1%, while comps fell 3%.

Sales across Jewelry Collections were unchanged. On the contrary, sales across Engagement Jewelry and Designer Jewelry declined 3% and 10%, respectively.

Let’s Delve Deeper

By geographic segments, sales in the Americas fell 4% to $455 million, while comps also declined by an equivalent rate. In the Asia-Pacific region, sales slid 1% to $298 million, while comps tumbled 3%. In Japan, sales remained flat year over year at $155 million but comps fell 1%. Sales in Europe came in at $116 million, down 4%, while comps fell 6%. Other net sales were unchanged at $25 million, whereas comps plunged 29%.

Gross margin contracted 130 basis points to 62.7% in the quarter under review on account of changes in sales mix toward higher price point jewelry. Operating margin shrunk 20 basis points to 16%. For fiscal 2019, management expects operating margin to be equal to the year-ago level.

SG&A expenses declined 5% to $473.4 million during the quarter primarily due to lower marketing spending and fall in labor and incentive compensation costs. This was partly offset by higher store occupancy and depreciation charges.

Store Update

During the first half of fiscal 2019, this designer and retailer of fine jewelry opened three company-operated stores and shuttered two locations. As of July 31, 2019, the company operated 322 stores (124 in the Americas, 90 in Asia-Pacific, 56 in Japan, 47 in Europe, and five in the UAE). Management anticipates gross retail square footage growth of 3% for fiscal 2019 on the back of 10 store openings, five closings and 17 renovations/relocations.

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $680.6 million and total debt of $1,019.2 million, reflecting 32% of stockholders’ equity.

In the quarter, the company repurchased approximately 639,000 shares at an average cost of about $94 per share. As of Jul 31, 2019, the company still has $550 million remaining under its share repurchase program, which expires in January 2022.

For fiscal 2019, management expects net cash from operating activities of at least $750 million, capital expenditures of about $350 million and free cash flow of at least $400 million.

Guidance

For fiscal 2019, management continues to expect worldwide net sales growth at a low-single-digit rate. Earnings per share are likely to increase at low-to-mid-single-digit rate. Comps for the fiscal year are expected to be unchanged.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Tiffany has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Tiffany has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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