Tiffany & Company (NYSE:TIF - News) entered into a strategic joint venture with a Dubai based company, Damas Jewellery, in a move to enhance the visibility of its brand in the United Arab Emirates. Both the companies agreed to infuse capital in the joint venture.
The company signed a memorandum of understanding (MoU) with Damas, which will facilitate Tiffany to integrate its five existing stores with its worldwide store network.
Of late, the emerging markets have been an important region for the retailers to enhance their profitability. The region not only provides an avenue to amplify sales but also brings in long-term opportunities for retailers to expand their margins as consumer spending in the region is one of the highest in the world.
According to the data released by the Department of Economic Development (:DED), the consumer confidence index (NYSE:CCI - News) of Dubai is rising. Overall CCI in Dubai marked an increase of 15 points to 125 in the last quarter of 2011 compared with the third quarter.
Perhaps, retailers are not the only ones eyeing the region to generate profits, recently in a similar move, News Corporation (NasdaqGS:NWSA - News), a diversified media company in United States, reached an accord with the MOBY Group (:MOBY) to acquire a minority stake in the company in order to expand its footprint in the Middle East.
Coming back to the story, the MoU states that Tiffany will be looking after the assortments and pricing and will also be responsible for the staffing and financial services for its existing (3 Dubai stores and 2 Abu Dhabi stores) and future stores while enriching the shopping experience of customers.
Moreover, the company will also undertake advertising and promotional activities to reach its target audience. The joint venture is expected to be operational in the second quarter of 2012.
Before the announcement of the joint venture, Tiffany used to sell its merchandise to Damas on a wholesale basis, which operated the Tiffany stores.
The decision came after the company chopped its earnings projection. Management now expects fiscal 2011 earnings to be between $3.60 and $3.65 per share, reflecting a growth of 23% to 25%. Earlier, the company had guided earnings in the range of $3.70 to $3.80 per share.
The current Zacks Consensus Estimate for the year is $3.66, a penny ahead from the company’s high end of the guidance range.
Currently, we maintain our long-term Neutral recommendation on the stock. Moreover, Tiffany holds a Zacks #3 Rank that translates into short-term Hold rating, and correlates with our long-term view.
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