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Tiffany Losing its Sheen

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It seems as of now that Tiffany & Company’s (TIF - Free Report) stake is at an unfavorable position as the challenging economic condition is taking away the sheen from this jewelry retailer. This is quite apparent from its lackluster performance for the fourth consecutive quarter and the lowered fiscal 2012 outlook.

Sluggish Sales Trend

Tiffany’s global net sales in the third quarter of fiscal 2012 rose 4%, following an increase of 2% in the second quarter, and 8% for both first-quarter fiscal 2012 and fourth-quarter fiscal 2011. From this perspective, it appears that sales growth rate has increased sequentially, but it has fallen to low-single digits from the high-single digit range.

Moreover, if we look back at the sales growth in the first three quarters of fiscal 2011, the story is much clearer. Total sales in the third, second and first quarters of fiscal 2011 enjoyed double-digit growth, increasing 21%, 30% and 20%, respectively.

Bottom-Line Missing Zacks Estimate

Tiffany continues to disappoint with its bottom line results. The company’s third-quarter 2012 bottom-line performance mirrored the results of the second and first quarters of fiscal 2012, and fourth quarter of fiscal 2011.

Third-quarter earnings of 49 cents a share fell way behind the Zacks Consensus Estimate of 63 cents, and dropped sharply from 70 cents 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.

The company’s second-quarter earnings of 72 cents a share had missed the Zacks Consensus Estimate by a couple of cents, and dropped sharply from 86 cents earned in the prior-year quarter. First-quarter 2012 earnings of 64 cents a share came below the Zacks Consensus Estimate of 69 cents, and dropped from 67 cents delivered in the prior-year quarter. With regard to the fourth-quarter 2011 performance, earnings of $1.39 per share fell short of the Zacks Consensus Estimate of $1.42, and dropped from $1.44 posted in the prior-year quarter.

The earnings lagged the Zacks Consensus Estimates by 22.2%, 2.7% and 7.3% in the third, second and first quarters of fiscal 2012, respectively, and by 2.1% in the fourth quarter of 2011.

Guidance Lowered

Given the weaker-than-expected third quarter results and sluggish economic recovery in most of the countries, management trimmed its fiscal 2012 outlook for the third time in a row. The company now projects earnings in the range of $3.20 to $3.40 per share, down from $3.55 to $3.70 forecasted earlier.

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

Downslide in Estimates

Following Tiffany’s third quarter results, the Zacks Consensus Estimates have been portraying a downward trend.

The Zacks Consensus Estimate for the fourth quarter of fiscal 2012 dropped by 12 cents to $1.47 per share in the last 7 days. For the first quarter of fiscal 2013, the estimate fell 4 cents to 70 cents. For fiscal 2012 and 2013, the Zacks Consensus Estimates slid 32 cents and 30 cents to $3.27 and $3.80, respectively, over the same time frame.

Closing Commentary

We will have to wait and watch as to how the story unfolds in the fourth quarter. Currently, we maintain our long-term “Underperform” recommendation on the stock. Moreover, Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Free Report) and Zale Corporation , holds a Zacks #4 Rank that translates into a short-term “Sell” rating.

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