Tiffany Hangs Tough
Tiffany's second-quarter earnings were down slightly from the year-ago period, and management says the next quarter should be about the same. Like everyone else, the company thought sales would be stronger by now. But Tiffany is performing better than its competition, and should emerge stronger once the worldwide economic climate improves.
By Rex Moore (TMF Orangeblood)
August 16, 2001
Fine jeweler Tiffany (NYSE: TIF) may fare better than anyone else in the industry when times are tough, but for the time being it's still just swimming in place. And although management has shown it's no better at forecasting an economic turnaround than your next-door neighbor, it believes when things do get better, the company will be stronger relative to the competition.
Second-quarter earnings this morning showed sales ticking lower by less than 1% from the same period last year, but net income dropped 8%. Tiffany's inventory, meanwhile, has increased 19% over the past year. This is an indication that management had expected higher sales than it actually achieved, something it admitted in the last 10-Q. However, as Mike Trigg explained in a recent Rule Maker column, excess inventory is not as potentially harmful to a jeweler as it may be to a technology company. Diamonds aren't likely to go out of style over the next couple of quarters.
CEO Michael Kowalski, who last May thought sales would ramp up again by the second half of this year, told investors this morning he sees third-quarter earnings flat to slightly lower than last year's. "There is widespread uncertainty about the timing and magnitude of a global economic recovery," Kowalski said.
When things do improve, though, expect Tiffany to be well-positioned to capitalize. While it is seeing flat to slightly negative growth in the near future, competitors are having a tougher time. Zale (NYSE: ZLC) warned earlier this month it would miss fiscal fourth-quarter estimates badly, and said earnings per share will be down 69% to 84% from the year-ago period's. Similarly, Finlay (Nasdaq: FNLY) is expecting a second-quarter net loss of $0.10 to $0.12 a share, compared with a gain of $0.10 the prior year. (Although Wal-Mart (NYSE: WMT) is the largest jeweler in the world, that segment comprises only 2% of its sales and the company doesn't break the data out in its quarterly reports.)
So it appears Tiffany's superior brand is once again working in its favor. And given the state of its struggling competition, the company stands to emerge from the economic malaise stronger than ever.
