Tiffany specialises in razzle-dazzle, but it's learning
there's a benefit in being understated, too.
Tiffany & Co shares rose 8 percent after the jewellery
chain reported quarterly sales declines that weren't as bad as expected. It
also posted year-over-year earnings growth for the first time since 2015.
But Tiffany also warned it was "premature to say
there has been a meaningful turn" in the beleaguered global luxury
business.
Eager investors should also note that Tiffany's shares
are expensive, trading at 21 times forward earnings, compared to a 5-year
average multiple of 19.8.
And there's a laundry list of unknowns facing the
company:
Trump effect: Tiffany said security and protesters around
Trump Tower had blocked the main entrance to its flagship store on Fifth
Avenue, causing traffic and sales declines during the all-important holiday
season. Tiffany doesn't specify how much its flagship generates in sales,
saying only it accounts for less than 10 percent of total sales. Tiffany said
it had no idea if and when this problem would end. Strong Dollar: A stronger
dollar, buoyed by hopes of fiscal stimulus and higher interest rates in a
Donald Trump presidency, could pressure results through foreign currency
translation and lower foreign tourist spending.
A move away from
luxury: Tiffany has seen a shift away from the high-end, fine
"statement" jewellery such as diamonds and other gemstones, as
shoppers buy more silver and other lower-priced fashion jewellery. This
has been good for its profit margins, as input costs are lower for fashion jewellery.
But what will be the long-term impact on the upscale brand, now synonymous
with diamonds and other high-end pieces, if it starts to become known as a
place to buy silver necklaces and fashion bangles? Hong Kong: Tiffany has
already said it believes the US elections dampened its sales. Now it expects a
similar distraction in Hong Kong, one of Tiffany's largest markets, as the
Asian hub elects its next chief executive.
Despite all this, there is still reason to believe
Tiffany's shares may stay afloat. It comes down to what Tiffany has always been
good at - branding.
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For one, Tiffany has smartly conditioned investors
to expect the worst: Despite improvements in the third quarter, it reiterated
forecasts that sales and profits for the full year would decline from the year
before. The jeweller will also soon start to benefit from easier year-over-year
sales comparisons, thanks to its five-quarter-long losing streak. That will
make it easier to show progress.
Tiffany's profits will also benefit as it sells more
higher-margin goods such as silver and gold jewellery, raises prices, and cuts
spending.
While the sparkle hasn't returned to Tiffany's sales,
there's a glimmer of hope that - for its stock price, at least - "not
bad" could be good enough.
This column does not necessarily reflect the opinion of
Bloomberg LP and its owners.
BLOOMBERG