Tiffany & Co. (TIF)—known as much for its iconic “Tiffany blue” box as for the often lavish contents it holds—may be a welcome gift, but its stock has fallen from favor along with much of the rest of the retail sector. Will Tuesday’s pre-open earnings report bring back any of its luster?
Wall Street analysts widely use TIF as a proxy for the wealthier shopper’s confidence in the economy. Given the choppy results from other retailers so far this quarter, Street analysts are generally mixed on their forecasts. Late last week, some chipped a penny off their Q3 per-share average estimates that now stand at $0.74, according to a Thomson Reuters survey. In the same period a year ago, TIF made $0.76 a share.
Like other U.S.-based, international retailers, TIF has faced a finicky consumer here at home and tough currency translations from a stronger dollar abroad, analysts note. And then there’s been the marked falloff in international travelers that some analysts say has put a dent in tourist-magnet retailers in the U.S. and overseas, including TIF.
For instance, Cowen Group’s luxury analyst Oliver Chen took Macy’s (M) anemic Q3 earnings, same-store sales, and inventory results and, specifically, its commentary on weak tourism, as a foreshadowing of what investors might see in TIF’s results.
Global Issues at Home
Many analysts noted that TIF CEO Frederic Cumenal spoke of the foreign currency bite against the strong dollar in international store locations and the company’s preparations on his Q2 conference call: “We entered this year expecting translation and tourism-related pressures on sales and earnings from the exceptionally strong U.S. dollar, as well as challenging economic conditions in certain markets. While the adverse effects from the strong dollar have been even more significant than initially expected, we met our overall expectations in the first half of the year,” according to the company’s transcripts.
Reuters, reporting on results from the Thomson Reuters StarMine analyst release, had this to say: “Analysts say the company has to weather near-term pressures, heightened by recent attacks in Europe, which can further deter spending in the important holiday quarter. Investors will look out for any forecast from Tiffany and comments on when it expects headwinds to mitigate.”
The report also notes potential upside support over the long haul from attractive profit margins.
What Could Stock and Option Action Tell Us?
Long-run expectations may have helped TIF stock stay in a tight trading range late last week, but it still closed down better than 8% from the week before. This is a stock that closed on December 29, 2014, at $108.68 and lost nearly 31% of its value throughout 2015 (figure 1).
It could be on the move again. Short-term options traders are pricing in a potential 7.5% share move in either direction around this earnings release, according to TD Ameritrade’s thinkorswim® platform’s Market Maker Move indicator.
Keep in mind that TIF isn’t generally a big fixture in the options pit. The implied volatility is at the 72nd percentile. There’s been some uptick in volume for the 80 and 82½ call options, while put options at the 67 1/2 strike have drawn increased interest in the lead-up to earnings.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.