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Stock Analyst Update

Tiffany Results Strong Across Regions and Categories

Upcoming operational improvement and brand quality are more than priced into the wide-moat firm's share price.

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We are keeping our fair value estimate of $92 per share for wide-moat  Tiffany (TIF) after the company reported second-quarter results. Although management increased full-year earnings guidance from the prior quarter to $4.65-$4.80 per diluted share from $4.50-$4.70, this is still below our expectation for $4.92 per diluted share. The upward revision is related to a lower than previously expected tax rate (mid-20s versus high 20s previously guided) but damped by the negative effect of import duties in China (prices lowered immediately on inventory that still incorporated previous duties) and depreciation charges related to the renovation of the New York flagship store. The company now expects operating and free cash flow to be around $100 million lower than prior expectations due to increased investments in high jewelry inventory. We consider the shares pricey at current levels and believe upcoming operational improvement and brand quality are more than priced in. 

Second-quarter revenue growth in constant currencies was 11%, helped by 7% comparable sales, with all regions and product categories contributing. Sales trends in the second quarter were broadly in line with the first quarter and came on top of an unchallenging comparison base (comparable sales declines in the low single digits in 2017 and high single digits in 2016). Management kept its guidance for high-single-digit sales growth for the year (we expect 8.8% revenue growth with a 1.9% contribution from space and 6.9% comparable sales). Increased marketing activities, new collection acceptance, and a continued supportive demand backdrop should help fuel sales growth.

All product categories contributed to growth; jewelry collections were especially strong at 18%, with strong performance of the iconic lines and early success of the Paper Flowers collection. Engagement jewelry, a weaker performer for the company historically, also delivered high-single-digit growth on top of three years of declines.

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Jelena Sokolova does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.