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.
TUTORIAL: Investing 101

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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!