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Tickers in this Article: TIF, KSS, TGT, WMT, ZLC
So far, the third quarter has been generous to most companies that have reported earnings. Jeweler Tiffany's (NYSE:TIF) is no exception, with numbers that were viewed very favorably by Mr. Market. The company reported both higher-than-expected sales and net earnings from continuing operations. Even more significant, revenue was down only 3% from the year-ago quarter.

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The Power of a Brand
There's no question that Tiffany's is just not any jeweler. For years, the company's brand and image - popularized by the little blue box - have set it apart from its competition. And that brand and everything that comes with it have helped Tiffany's report a return on equity of over 15% for the past 10 years. Compare that with other jewelers like Zale Corporation (NYSE:ZLC), which is currently suffering from net losses. There's a certain benefit to being a luxury brand in the jewelry industry - you certainly have more recession-resistant customers and fewer competitors for your particular product. Zale's doesn't only compete with other mass merchant jewelers, but it also competes with mega retailers like Kohl's (NYSE:KSS), Target (NYSE:TGT), and yes, even Wal-Mart (NYSE:WMT).

Look Forward
There's no question that the powerful Tiffany brand played a big role in the company's continued resilience. However, one ought not forget that once the recession kicked into full gear about a year ago, analysts began slashing expectations across the board. So, while it's still very encouraging too see positive earnings surprises, going forward, it will likely be much more difficult to do so. Also, just like every other company responding to this weaker economy, Tiffany's managed to cut back on its costs, which certainly helped net profit remain flat quarter over quarter. For the first three quarters of 2009, however, net profit was down by almost 30%, which is nothing out of the ordinary for a discretionary business. (For related reading, check out Competitive Advantage Counts.)

Going forward, one ought to expect a difficult environment for any retailer. The holiday season may have an unrealistic temporary effect, but that won't last long. Despite what Tiffany shares may or may not do, at 35 times earnings, the shares are perfectly priced for perfect execution going forward. I don't think any company, in good or bad times, executes perfectly, much less a jeweler in this environment.

Price Paid Determines Value Received
When shares were fetching $16 and Tiffany's was trading near book value, a sound argument could be made for buying this iconic brand. Tiffany's is an excellent, well-managed business, but at today's prices it's not necessarily an excellent investment.

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