In its last four quarterly reports, Tiffany & Co. (NYSE:TIF), has averaged a positive surprise of 10.2%. That’s been good for TIF stock, which is up 30.9% over the past 52 weeks. Announcing Q2 2017 earnings Thursday, Aug. 24, before the markets open, the jewelry retailer is setting the table for a fifth consecutive quarter of better-than-expected earnings.
Although it has beaten analyst expectations in each of the last four quarters, investors shouldn’t expect a double-digit beat this time around.
First, the analysts’ estimate for earnings is $0.87 per share, 2 cents lower than their expectations just three months earlier. Secondly, its earnings surprises in its two recent quarters have been one-third as robust as the earlier two.
Analysts have likely figured out the state of its business heading into October when former Diesel CEO Alessandro Bogliolo takes the helm.
Ironically, despite the fact the consensus is Bogliolo’s hiring was a good one, TIF stock is down 5% since the July 13 announcement.
TIF: Business as Usual
As I said earlier, Bogliolo doesn’t start until Oct. 2, so don’t expect too much from the company during the conference call with analysts other than an assessment of the quarter’s numbers.
On the bottom line, analysts expect $0.87 per share. On the top line, revenues are projected to be $932 million, flat to a year ago. Same-store sales, which declined 2% on a worldwide basis in the first quarter, are likely to be negative in the second quarter as well.
The one bright spot regarding sales in the previous quarter was Europe, which saw net sales and same-store sales increase 4% and 3% on a constant-dollar basis respectively.
Areas for Improvement for TIF Stock
Profit-wise, its Asia-Pacific segment continues to be the real winner, boosting operating profits by 21.2% in Q1 2017 to $72.7 million or 28.3% of its revenue. That’s almost double the operating margin of its America’s segment, the company’s largest by revenue.
While fashion jewelry, which represents 33% of its overall business, continues to do well with revenues up 7% in the first quarter, its engagement jewelry and wedding bands business, which accounts for 28% of overall revenue, saw a 7% decline year-over-year.
So, I would look at three numbers, and I wouldn’t rush to judgement given the company is in a transition.
First, gross margins ought to be around 62%. They were 62% in the first quarter, 80 basis points higher than a year earlier, and 61.9% in Q2 2016. Anything within 20 or 30 basis points will be just what the doctor ordered.
Hopefully, its engagement ring business improves sales in the second quarter, but it’s not something to fret over until Bogliolo’s had 2-3 months to assess the business from the inside.
Costco Busted
On a positive note, it will be nice to listen to the comments during the conference call around its $19 million judgment against Costco Wholesale Corporation (NASDAQ:COST) for selling diamond rings using the name “Tiffany” in the title.
While I’m a fan of Costco, its marketing people should have known better. Good on Tiffany for protecting its brand. If it wants to play in the luxury sandbox, it has got to keep a lid on people pirating its image in any way.
I’m pretty sure the new CEO, who also spent 16 years at Bulgari, will ruthlessly enforce this in the future.
Bottom Line on TIF Stock and Earnings
This earnings report is likely to be a non-event.
Should its stock drop on the news, I’d consider buying some below $80. At 24 times earnings it’s not exactly cheap, but I expect Bogliolo will have Tiffany running smoothly just in time for the all-important holiday season.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
