Will Tiffany & Co. (TIF) Beat Earnings Estimates?

Zacks

Tiffany & Company (TIF) is an American multinational jewelry and specialty retailer, headquartered in New York City, United States. Most of us have seen the Tiffany Blue Box, and the firm is arguably the world’s most famous jeweler. The company is set to conduct a conference call, in which the company will announce its quarterly financial results and earnings.

Many components go into determining whether a company is going to crush its estimates or not, but let’s take a look at some of the most important factors for TIF below:

Retail in Relation To World Economy

Many in the worldwide markets, including China, are worried about the financial situation in the global markets. People across the globe have become more frugal lately, and retailers are feeling the pinch. This is one reason as to why the retail sector in general has not been doing too well this quarter, and it is the reason why many retailers did not beat estimates.

Weak results from the likes of Wal-Mart (WMT), Macy’s (M) are not very auspicious signs for the retail market, and we have also seen that not even affluent US consumers have been saving their pennies, despite good economic results and an overall 4% GDP increase last quarter.

Apparently consumers are concerned with employment and living costs, and the weak sales and margins exemplify how growth is slowing down, and how aware American buyers and customers are. Despite the growing job market, the income growth is still relatively weak, and average earnings aren’t increasing as rapidly as they should be.

The case is a little bit different for luxury retailers though, as people who tend to be lured to luxury retailers are normally those who are not directly impacted by a financial market setback or fluctuations in unemployment.

Michael Kors’ (KORS) quarterly margins were squeezed by too much discounting to clear inventory, and it gave investors the wrong impression (KORS isn’t all that luxurious), in that KORS cannot compete in the market without discounting. This was also the same issue with Kate Spade (KATE), as KATE’s shares lost nearly a quarter of their value after the luxury retailer stated that its gross margins were hit by intense competition.

After all, retail sales in China have also taken a hit, and sales of jewelry fell back 16% this year in Chinese markets. Will Tiffany & Co. face the same fate?

Tiffany’s Prospects

Tiffany is a unique retailer though, it is specialized in jewelry and there is a lot of ‘New York’ to the company. Tiffany is a place where the designers completely rethink, and reinvent the designs of their product lineups. TIF’s Chairman and CEO, Michael J. Kowalski, has announced his desire to retire, and we may be seeing a new era for TIF in the near future as well.

TIF is known throughout the industry as a pioneer and a leader, committed to safe and environmentally responsible business practices. The company believes in “a business imperative and a moral obligation to look beyond its own practices to support responsible behavior throughout the entire jewelry supply chain.”

Responsible mining has always been a long-term social and environmental challenge for Tiffany, along with the sourcing of TIF’s raw materials, ranging from diamonds and gold, to the papers in the iconic Blue Box.

TIF aims to advance rigorous reasonable mining practices and standards, and fortunately, significant progress was made in 2013. Tiffany is also a large investor in diamond mining countries, while actively espousing preservation efforts and encouraging progressive and innovative government supervision.

TIF is able to uphold the integrity and honesty of its supply chain without compromising job creation, training unskilled labor, and benefitting the economies of the countries TIF is investing in. These sustainability goals have so far been met, and TIF has made clear that it only purchases diamonds and gold mined with specific standards.

Tiffany is also responsible with the work it gives to its employees, and the way in which they are treated, along with the benefits given to them. The company has a diverse work force, and is committed to safe and humane work conditions. TIF is also renowned for charitable giving. TIF donated over 2% pre-tax earnings in 2013 to the Tiffany & Co. Foundation, which continues preserving and advancing the firm’s sustainability missions.

Financials & Bottom Line

TIF seems likely to beat earnings expectations when it announces its earnings on August 27th, before the opening bell rings. For the financial quarter ended 4/30/2014, TIF made sales, or revenue worth $1,012 million, with a gross profit of $590 million, and a positive net income of +$126 million. The company had a diluted net EPS of $0.97/share, and carries a forward P/E ratio of 23.16. Analysts have revised and upgraded their EPS estimates for the current quarter 90 days ago, from $0.85/share to $0.86/share.

A beat for TIF would also come after a pretty strong performance from the jewelry giant in the previous quarter. In that time frame, last quarter’s earnings surprised the Zacks EPS estimates by 25.97%. If anything, TIF looks positioned to beat estimates and continue its responsible expansion and growth, which is likely to help long-term investors cash in on some gains.

Another jewelry stock to consider is Signet Jewelers Ltd. (SIG), which has a P/E ratio of 19.53, which is good compared to the industry average of 20.20. SIG currently maintains a Zacks Rank #1 (Strong Buy), and could also be poised to beat earnings and continue growing.

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Read the analyst report on SIG

Read the analyst report on TIF

Read the analyst report on KORS

Read the analyst report on KATE


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