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Tiffany's Growth Plans on Track Despite Near-Term Bumps

Zacks Equity Research

Shares of Tiffany & Co. TIF have risen 15.6% in the past six months and outpaced the industry’s growth of 5.4%, as investors are confident about its growth prospects. Notably, the company is focused on evolving its brand, enhancing omni-channel experience, solidifying position in core markets and increasing operating efficiency.

Buoyed by such efforts, management is optimistic about fiscal 2019. It continues to project worldwide net sales growth at a low-single-digit rate on a reported basis, with comps also expected to rise at the same rate. Earnings per share are projected to increase at low-to-mid-single-digit rate.

However, escalating trade tension between United States and China has been a concern. Elevated tariff to roughly 25% on jewelry that is exported to China from the United States has added to its woes. Management had earlier guided that first-half of fiscal 2019 is likely to witness roadblocks with performance expected to improve in the second half.

Driving Factors

Tiffany is well positioned to boost its top- and bottom-line performance over the long run by banking on capital investments made over the past several years in the distribution, manufacturing and diamond sourcing processes. The company is making efforts to enhance in-store experience and replenish the product portfolio. In this regard, it launched PAPER FLOWERS, which comprises solid collection in diamonds and platinum, and the introduction of TIFFANY TRUE, an innovative engagement ring design.

Further, the company has been steadily rolling out jewelry designs, watch collection and fragrance, and additional jewelry SKUs, in a bid to lure customers. Also, it intends to introduce company-operated e-commerce website in China.

These apart, Tiffany is on track with its plans to open smaller stores that offer selected collections of low-priced, high-margin products, which, in turn, boosts store productivity. It is also working toward improving sales per square foot and increasing traffic by targeted advertising, ongoing sales training and customer-oriented initiatives. Management anticipates gross retail square footage growth of 3% for fiscal 2019.

A Brief Introspection

Lower spending by foreign tourists has already weighed on its first quarter results, wherein both net sales and earnings per share declined year over year. Also, the company’s comparable sales declined 5%. Management projects this headwind to continue in the second quarter as well, with earnings likely to decline year over year.

Nonetheless, management anticipates performance of the company to improve in the second half of the fiscal on account of favorable year-over-year comparisons, easing of foreign exchange pressure, and launch of new products and related marketing campaigns.

The aforementioned pros and cons justify a Zacks Rank #3 (Hold) for the stock.

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