Upscale jewelry store retailer Tiffany & Co. (NYSE:TIF) reported impressive first quarter results last week as sales jumped 20% and profits advanced 26%. At the current valuation, the market expects these growth levels to continue for many years to come, but it may only get half these levels, based on Tiffany's past track record.
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First Quarter Recap
TIF's net sales jumped 20% to $761 million on new store openings and a double-digit increase in same store sales. Comps increased a very healthy 15%, when stripping out currency fluctuations and on this "constant-exchange-rate basis" total sales rose 16%. The only region not to report sales growth was Japan, as many stores were closed after the earthquake in March, though the stores have all reopened. Other growth in the Asia Pacific region was the strongest of all regions, advancing 31% on a 26% increase in comps.

Sales costs increased at a slightly lower rate than sales and allowed gross profits to improve 21.2% to $443.7 million. The same went for SG&A costs, which grew 18.1% and allowed operating income to jump 29% to $136 million, or 17.9% of sales. Higher income tax expense slightly tempered the bottom-line increase to a still impressive 25.8% for total net income of $81.1 million, and share buybacks helped send reported per-share earnings up 26% to 63 cents per diluted share. This came in ahead of analyst projections. (For more, see Understanding The Income Statement.)

For the full year, management currently projects mid-teens global sales growth on double-digit comp growth and the opening of 19 new stores. It expects net earnings between $3.45 and $3.55 per diluted share, or state year-over-year growth in a range of 18% and 21%. (For more, see Analyzing Retail Stocks.)

Tiffany's Competition
The recovery in Tiffany's global sales has been nothing short of remarkable since the depths of the credit crisis in late 2008 and early 2009. The higher end of the retail market has experienced the strongest recovery, with department store retailers including Nordstrom (NYSE:JWN), Saks (NYSE:SKS), and Neiman Marcus also reporting impressive sales and profit rebounds.

Tiffany's rivals include Zales (NYSE:ZLC), Signet Jewelers (NYSE:SIG) and online via Blue Nile (Nasdaq:NILE). Zales and Signet operate an array of more mid-market jewelry brands and also reported double-digit comps during their first quarters while Blue Nile logged just over 8% sales growth during its first quarter. Yet these rivals have had difficulty growing earnings since the credit crisis and can't come close to matching Tiffany's global scale and more prestigious image.

Bottom Line
The only thing not to like about Tiffany is its valuation. Given the current full year guidance, the stock trades at a forward P/E of nearly 22. This is simply too high given Tiffany has only managed to grow sales and earnings in the high single digits on average annually over the past decade. For now, its operations are still recovering from the plummet in consumer spending a few years ago and will likely return to more normal single-digit levels over the long haul. (For more, see How To Use The P/E Ratio And PEG To Tell A Stock's Future.)

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