Tiffany & Co Q4 Earnings Report: Meeting Expectations?

The Q4 2016 earnings report forlarge cap luxury accessories stock Tiffany & Co (NYSE: TIF) is scheduled for before the market the opens onFriday (March 17th). Last month, JANA Partners LLC, which together with Francesco Trapani owns approximately 5.1% of Tiffany & Cos outstanding shares, announced agreements where three new independent directors will be appointed to theBoard of Directors. In addition, activist investors forced CEO Frederic Cumenal to retire immediately with the Chairman and now Interim CEO saying:

“The Board is committed to our current core business strategies, but has been disappointed by recent financial results. The Board believes that accelerating execution of those strategies is necessary to compete more effectively in today’s global luxury market and improve performance. As such, we remain focused on enhancing the customer experience, increasing the rate of new product introductions and innovation, maximizing marketing effectiveness, optimizing the store network, and improving our business operations and processes, all while efficiently managing our capital and costs. We believe these initiatives and the pace of their execution are key to driving shareholder value. Tiffany is an iconic brand with a family of talented and committed employees to match, and I look forward to supporting both during the transition.”

Mizuhos Betty Chen and Alex Pham then wrote:

Tiffany faces several near-term headwinds ranging from macro volatility in APAC and Europe, lack of visibility in the U.S. business, and diminishing commodity price benefits. We are lowering our forecasts and believe consensus FY17 estimates are overly optimistic given the aforementioned backdrop.

In January, Tiffany & Co reported that for the two months ended December 31, 2016, worldwide net salesof $966 million were slightly above $961 million a year ago, with sales growth in Asia-Pacific and Japan largely offset by lower sales in the Americas and Europe (worldwide comparable store sales declined 2%).The CEO commented:

These overall holiday period sales results were somewhat lower than we had anticipated, but we continue to benefit from a favorable gross margin and prudent expense management. Although we do not anticipate any significant improvement in 2017 to the macroeconomic challenges that we faced this year, we continue to focus on our initiatives to enhance our stores and our customers’ experience, and to add newness to our product assortment, while maintaining effective marketing communications and a well-developed supply chain. We believe executing on these initiatives, which are within our control, will contribute over the long-term to strengthening Tiffany’s competitive position among global luxury brands.”

A technical chart for Tiffany & Co actually shows a general uptrend since the summer:

A long term performance chart shows shares of Tiffany & Co heading back towards late 2014 highs while mid capSignet Jewelers Ltd (NYSE: SIG) peaked in late 2015 andhas largely fallen off since then:

In late November, Tiffany & Co reportedthat third quarter worldwide net sales rose 1% to $949 million and comparable store sales declined 2% asa modest increase in fashion jewelry sales was offset by softness in other product categories. On a constant-exchange-rate basis, worldwide net sales were unchanged from the prior year and comparable store sales declined 3%. Net earnings increased 5% to $95 million reflecting an improvement in gross margin and, to a lesser extent, lower interest and other expenses, partly offset by a lack of sales leverage on selling, general and administrative expenses. The CEO commented:

“We are encouraged by some early signs of improvement in sales trends, but we clearly need more positive data over time before this can be considered an inflection point. In this recent quarter, we saw a smaller sales decline in the U.S. from earlier this year, while Asia-Pacific results reflected strong growth in mainland China and a relatively smaller decline in Hong Kong. Our business in Japan performed well which we attribute to spending by domestic consumers, but we believe the strengthening of the yen has negatively impacted purchases by Chinese consumers. We also saw relative strength in UK sales, but a continuation of softness on the European continent.”

“This year, we’ve added exciting new designs across our jewelry and watch categories and are pleased with initial customer response. As the global environment continues to reflect economic and other challenges that we believe are continuing to affect customer demand, it is more important than ever that we remain focused on strategies to deliver extraordinary products and experiences to our customers. Over the long-term, our objective is to enhance profitability and productivity through sales growth and prudent expense and inventory management, while further strengthening our competitive position among global luxury brands.”

Finally, here is a quick recap of Tiffany & Cos recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

EPS Est. 1.4 0.68 0.72 0.67
EPS Actual 1.46 0.69 0.84 0.76
Difference 0.06 0.01 0.12 0.09
Surprise % 4.30% 1.50% 16.70% 13.40%
EPS TrendCurrent Qtr. (Jan 2017)Next Qtr. (Apr 2017)Current YearNext Year
Current Estimate 1.39 0.69 3.66 3.87
7 Days Ago 1.39 0.69 3.66 3.87
30 Days Ago 1.39 0.69 3.66 3.88
60 Days Ago 1.44 0.71 3.73 3.97
90 Days Ago 1.44 0.72 3.72 3.99

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