Specialty Retailer Tiffany Earnings Beat Wall Street Estimates on Solid China Demand

Tiffany & Co, luxury jewelry and specialty retailer, recently bought by LVMH, reported better than expected profit in the third quarter, largely driven by strong sales growth in China, Korea and a revival in demand at home.

The specialty retailer said its global net sales fell 1% to of $1.0 billion and comparable sales increased by 3% from the prior year; on a constant-exchange-rate basis, net sales decreased 2% and comparable sales increased 1% from the prior year. Tiffany reported net earnings of $119 million, which was 52% higher than the prior year’s $78 million, and net earnings per diluted share were $0.98 versus $0.65 in the prior year.

Excluding certain costs, net earnings were at $136 million, or $1.11 per diluted share, were 73% higher than the prior year. That was higher than the market expectations of 66 cents.

“We are retaining our $131.50 fair value estimate for Tiffany’s shares as the company reported improving sales and profit dynamics in the third quarter. Our fair value estimate reflects the acquisition premium LVMH agreed to pay for Tiffany. The drop in revenue drop during the third quarter was contained to 1% at constant exchange rates, after the drop of 29% for the quarter ended July and a 45% drop in the first quarter (February to April). This was slightly worse than4% growth for Richemont’s Jewellery Maisons in the recent quarter, but still a solid performance,” said Jelena Sokolova, equity analyst at Morningstar.

“China grew by 70% in the quarter, boosted by Chinese nationals buying more locally as travel restrictions remained in place. The Asia region was the only one with a strong positive performance in the quarter, up 36% on a comparable basis and at constant exchange rates. In Japan and Europe comparable sales were down 5% and 9% respectively, with a solid performance in Europe, given a lack of tourists,” Sokolova added.

At the time of writing, Tiffany shares traded nearly flat at $131.5 on Tuesday. However, the stock is down about 2% so far this year.

Executive Comments

“We believe that the results we released today demonstrate that our strong continuing execution against the strategic priorities we set three years ago positions us to achieve sustainable sales, margin and earnings growth for this legendary brand. Further to continued management focus and investment in that important market, sales in Mainland China continued to grow dramatically in the third quarter, increasing by over 70%, with comparable sales nearly doubling in that period as compared to the prior year,” said Alessandro Bogliolo, Chief Executive Officer.

“In addition, and consistent with our focus, e-commerce sales finished the third quarter up 92% globally as compared to the prior year, performing positively in all markets. As a result, total e-commerce sales represent 12% of total net sales in the year-to-date, as compared to 6% for each of the last three fiscal years,”

Tiffany Stores Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at $127.38 with a high forecast of $135.00 and a low forecast of $120.00. The average price target represents a -3.17% decrease from the last price of $131.55. All those seven analysts rated “Hold”, according to Tipranks.

Morgan Stanley gave the base target price of $131.5 with a high of $131.5 under a bull-case scenario and $87 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the specialty retailer’s stock.

Several other analysts have also upgraded their stock outlook. ValuEngine upgraded Tiffany & Co. to a buy rating from hold. Zacks Investment Research upgraded to a buy rating from hold and set a $129 price target. UBS Group lowered their price target to $123 from $135 and set a neutral rating. Wells Fargo & Company lowered their price target to $120 from $135 and set an equal weight rating.

Analyst Comments

“LVMH and TIF announced LVMH will acquire TIF for $135/share in November 2019, and following potential transaction risk in September 2020 and subsequent legal disputes, both parties agreed to a slightly reduced $131.50/share purchase price in October 2020. Despite the slightly amended acquisition price, the transaction valuation remains in line with LVMH’s precedent transactions, and appears reasonably haircut to reflect COVID-19’s impact on TIF’s cash flows,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“We continue to see solid strategic rationale, as TIF’s status as a dominant luxury brand, global expansion potential, and pricing power make it a fundamentally attractive business,” Greenberger added.