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Tiffany's (TIF) Strategic Efforts Bode Well: Should You Hold?

Zacks Equity Research

At times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. These stocks rally as soon as the market enters into a correction mode. Here, we have discussed one such stock, Tiffany & Co. TIF with an expected long-term earnings per share growth rate of 9.8% and a VGM Score of “B”. We noted that the shares of this jewelry retailer have surged roughly 30% in the past six months compared with the Zacks categorized Retail-Jewelry industry that has witnessed an increase of 19%.

Driving Factors

Tiffany holds a significant position in the world jewelry market due to its distinctive brand appeal. The company is well positioned to augment both its top and bottom-line performance in the long run by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Further, it is looking at other revenue generating avenues, and this includes expansion into watch business.

With nearly half of the total sales generated internationally, we believe that the company is well diversified from a regional perspective as well. Moreover, Tiffany is focusing on enhancing its omnichannel platform. Previously it had also notified that its long-term objective is to attain ROA of at least 10% and ROE of at least 15%.

The company is focused on opening smaller stores that offer selected collections of lower priced higher-margin product, which in turn boosts store productivity. Tiffany concentrates on improving sales per square foot through an increase in customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.

 

 

Concerns

Tiffany is concerned about the global economic scenario that remains highly volatile given the upcoming elections in Hong Kong next year and the emerging economic environment in the European markets post Brexit. Further, the company hinted that the proximity of its Fifth Avenue Flagship Store to the Trump Tower has been leading to a lower footfall due to tight security measures there. Management remains concerned that the persistence of this situation will affect sales in the holiday season. Further, a mature domestic market, foreign currency headwinds and cautious consumer spending continue to pose concerns.

Management continues to anticipate earnings per share for fiscal 2016 to decrease by a mid-single-digit percentage from the prior year. Tiffany also reaffirmed that fiscal 2016 worldwide net sales is expected to decrease by a low-single-digit percentage.

Taking the pros and cons into consideration, the stock currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Investors may consider better-ranked stocks such as The Children's Place, Inc. PLCE, Tilly's, Inc. TLYS and Best Buy Co., Inc. BBY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an average positive earnings surprise of 36.3% in the trailing four quarters with a long-term growth rate of 10.3%.

Tilly's has an average positive earnings surprise of 98% in the trailing four quarters with a long-term growth rate of 15.5%.

Best Buy has an average positive earnings surprise of 25.7% in the trailing four quarters with a long-term growth rate of 11.9%.

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