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Earnings: Can Luxury Retailer TIF Navigate 3 Headwinds?

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May 24, 2016
Tiffany's (TIF) faces uncertain economic conditions as shares drop.

Tiffany’s (TIF) Q1 results are scheduled for release ahead of the market open Wednesday. Wall Street is waiting to hear how the iconic luxury retailer is managing a trio of risks including the strong dollar, uncertain economic conditions worldwide, and choppiness in the stock market.

TIF’s revenues and earnings declined or fell flat in each quarter last year and management warned Wall Street in Q4 that profits were likely to lag in Q1 2016. In January, TIF also said it would cut jobs to slash operating costs.

Wall Street is projecting per-share earnings of $0.68, a 16% drop from the year-ago results of $0.81 a share, according to many analysts at Thomson Reuters. That’s in-line with TIF’s own expectations of a 15% to 20% drop. The top line is forecast to total $916 million, about 5% below last year’s revenues of $962 million.

What’s ahead for TIF? Beyond how the blue-box retailer hopes to wrestle sales and earnings declines, and grow its e-commerce business, in January, TIF noted that it expected Q2 earnings to shrink 5% to 10%. Also, some analysts want to know what’s up with recent leadership changes. Earlier this month, TIF’s chief financial officer suddenly stepped down after only two years in the role.

Many short-term options traders have priced in a potential 5.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform by TD Ameritrade.

Ahead of earnings the 62- and 60-strike puts were actively traded. On the call side, the 64.5-strike at-the-money calls were active. The implied volatility is at the 74th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price 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.

FIGURE 1: TIFFANY’S BIG SWINGS.

Since bottoming in mid-January, TIF stock has advanced better than 7%. On a year-over-year basis, however, the shares are down by 26%. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.