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Will Tiffany Choose to Join LVMH's Portfolio of Luxury Brands?

Zacks Equity Research

In a bid to gain competitive edge in the fast-growing product categories and expand footprint in the U.S. luxury market, LVMH Moet Hennessy Louis Vuitton SE or LVMH has set its eyes on Tiffany & Co. TIF, per sources. The reports suggest that the owner of Louis Vuitton and Givenchy has made a buyout offer of approximately $14.5 billion to the New York-based jewelry retailer.

Per media reports, Paris-headquartered LVMH has confirmed its interest in Tiffany. “In light of recent market rumors, LVMH Group confirms it has held preliminary discussions regarding a possible transaction with Tiffany,” the company stated. “There can be no assurance that these discussions will result in any agreement.” Following the news, shares of Tiffany are up about 26% during pre-market trading hours today.

Industry experts believe that the acquisition of Tiffany — which would become part of growing luxury portfolio comprising Bulgari, Christian Dior, Dom Perignon, Fendi, Sephora and Guerlain — will add sheen to LVMH’s jewelry and watch segments. Meanwhile Tiffany, which operates more than 300 stores worldwide, will also gain from LVMH’s prominent presence in European and Asian markets.

Of late, Tiffany has been grappling with sluggish demand from foreign tourists, adverse currency fluctuations and disruptions in Hong Kong. Moreover, the impact of escalating trade tensions between the United States and China cannot be ruled out. The impact of these headwinds was evident in the company’s second-quarter fiscal 2019 results, wherein both the top and the bottom lines declined year over year.

We also note that comparable sales fell 4% during quarter, reflecting declines of 4%, 3%, 1% and 6% in the Americas, Asia-Pacific, Japan and Europe, respectively.

Nonetheless, Tiffany remains focused on evolving its brand, enhancing omni-channel experience and solidifying position in core markets. Management expects performance to improve in the second half of fiscal 2019 on account of favorable year-over-year comparisons, launch of new products and related marketing campaigns.

Notably, the company is strengthening its network of stores either through opening or upgrading flagship stores in three important areas, Beijing, Shanghai, and Hong Kong. The company is also is entering the Indian market with plans to open new stores in Delhi in second half of fiscal 2019 and in Mumbai in second half of fiscal 2020 in a joint venture with Reliance Brands Limited.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

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