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Earnings: TIF Results May Offer Insight on High-End Jewelers

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November 28, 2016
Tiffany Lamp: Quarterly Earnings Illumination
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High-end jewelers and other luxury retail brands have struggled in recent months, and really, for several years, amid sluggish consumer spending, slack tourism markets in the U.S. and Europe, and economic woes in Asia. Tiffany (TIF), whose robin’s egg-blue box is a universal symbol of elegance and opulence, has not been able to sidestep that, and has logged shrinking sales and profits for nearly three years.

When Q3 results are released Tuesday morning before the opening bell, analysts expect more of the same. "The global environment continues to reflect well-known challenges that we believe have had broad effects on spending by local customers, as well as foreign tourists, especially from China," said Chief Executive Frederic Cumenal said after Q2 results were announced.

In September, sales warnings by Hermes International (RMS) and Cie. Financière Richemont (CFR), the parent of Cartier, Piaget and Montblanc, underscored how “a significantly lower level of tourist activity” in Europe, hurt by terrorist attacks, was impacting luxury-goods makers everywhere. CFR warned then that operating profit through Q3 may drop as much as 45% from the year-ago period.

Analysts don’t expect those kinds of pullbacks for TIF but see more declines ahead this year. However, at least one Cowen and Co. analyst sees growth on the 2017 horizon while acknowledging “unprecedented changes and unknowns” ahead, according to a recent report. Cowen calls the stock a “beat-and-raise story” for 2017. “No one can easily recreate Tiffany’s diamond supply-chain relationships, owned polishing facilities, environmental controls, emotional product innovation and brand position,” the report said.

Other analysts echoed those sentiments, some noting that they expected Q3’s report to reflect new marketing efforts and the company’s continued efforts to improve productivity and efficiencies.  

Some analysts have been worried about the impact to sales at TIF’s flagship Fifth Avenue store, which sits next door—literally—to the Trump Tower, amid post-election protests and a heightened security presence. Cowen & Co. analyst Oliver Chen estimates the foot traffic at the location, which accounts for 8% of TIF’s total sales, has been cut in half because customers can’t get to the door, he says.

“There’s no way to sugarcoat this; the big worry is what will happen over the next few months,” Chen was quoted in Bloomberg as saying. “They are very important weeks before Christmas.” Indeed, holiday sales have historically accounted for some 40% of TIF’s full-year results.

At Thomson Reuters, analysts are forecasting, on average, earnings of $0.67 a share, falling 4.3% from the year-ago profit. If the estimate is on target, it will be the 13th straight quarter of declining earnings. Revenue also is projected to slip roughly 1.5% to $923.8 million from last year, which would mark the 12th straight quarter of flat or declining sales.

Short-term options traders have priced in a potential share price move of just over 5.5% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Recent call buyers have concentrated on the 80-strike price, and put buying has been scattered over a number of strikes. The implied volatility is at the 47th 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. 

TIF, 12m, 2015-16

FIGURE 1: TARNISHED?

TIF shares are down more than 2% on a year-over-year basis, but have surged 37% since bottoming in late June. TIF shares are trading 7% above their 50-day simple moving average. 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.

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