Tiffany’s first quarter sales were hammered, falling 22% globally on a 21% plummet in same-store sales. U.S. sales were dismal and declined 31% as comps fell 34%, highlighted by a dramatic 42% decrease at the flagship New York City store. Every region experienced a drop in sales, with only Europe posting positive trends when stripping out currency fluctuations.Understandably, all management could tout is that Tiffany remained “solidly profitable and will generate substantial cash from operations” for the full year. However, the trend in profits was worrisome, as earnings fell 60% to 20 cents per diluted share. Fortunately management relayed that sales declines are moderating so far in the second quarter. As a result, it kept its full year guidance intact, including expectations that continuing earnings will range between $1.50-1.60 per share.
Tiffany is also calling for full-year free cash flow of $400 million, or approximately $3.23 per share, based on current shares outstanding. That places the shares at a very reasonable price-to-free-cash-flow multiple of under nine times.
The Less-Than-Sparkling Competitive Landscape
Recent trends at Tiffany are alarming, but the company is not alone. Upscale department store retailers Nordstrom (NYSE:JWN) and Saks (NYSE:SKS) posted double-digit comparable sales declines during their most recent quarters. Even online retail rival Blue Nile (Nasdaq:NILE) couldn’t maintain growth momentum as sales fell 11.4% and earnings fell by double digits.
The Bottom Line
As unpopular as jewelry is these days, gold stocks, such as ANGLOGOLD ASHANTI LTD (NYSE:AU) are all the rage right now. But just as the frenzy for gold is unsustainable, so are the negative trends that Tiffany and its peer group are posting. At under 10-times free cash flow, shares of Tiffany should rebound substantially once business trends reverse course. (Read Buy When There’s Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
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2013-05-23 09:37
