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Will Tiffany Sparkle Again?

Posted: Jan 16, 2009 10:52 AM by Glenn Curtis

Tickers in this Article: JCP, M, JWN, ZLC, TIF

Thinking about going out and buying an expensive piece of jewelry for your significant other? After all, Valentine's Day is just around the corner.

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My guess is that fewer people will be making large luxury purchases this year, which is a big reason why I'm currently shying away from shares of high-end jewelry retailer Tiffany (NYSE:TIF). That said, I don't think this stock is entirely a lost cause - it all depends on your time frame.

Like any long-term relationship, there are many ups and downs when you decide to purchase a stock and hang on to it for a while. Let's take a look at some of the exciting things about Tiffany's business and the turnoffs that might turn some investors away from this well-respected New York-based company.

The Near-Term Issues
The first thing that gives me pause about Tiffany is a release that the company disseminated before the opening bell on Wednesday morning that revolved around its holiday sales results. According to the release, "worldwide net sales in the holiday period declined 21% to $687.4 million, from $867.3 million a year ago."

This is not exactly a promising report. However, that wasn't the only less-than-lustrous news the company had for investors. In the same release, the company also indicated that it's expecting to earn $2.25 to $2.30 per share for the full year on sales of about $2.85 billion.

The trouble with that is that analysts had been looking for $2.40 a share. As such, it's likely that analysts will be ratcheting down their numbers for the current year, and maybe even next year, in the days ahead. If I'm right, I think that could have an adverse impact on the share price. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

The other thing that stands out to me is the apparent lack of catalysts in the near-term. In other words I look at the release and the environment the company's operating in and I don't see anything that's going to really spur results in the near-term. Moreover, Tiffany's Chief Executive Michael Kowalski stated in the release: "While we are taking a cautious approach to planning our business for 2009, we will also continue to prudently pursue growth opportunities to further strengthen Tiffany's global presence and increase sales over the longer-term." Unfortunately, with the way things are going right now, this just doesn't sound like something that's just around the corner.

Next, let's take a look at how other stores have been performing. For example, well-known Whitehall Jewelers filed for bankruptcy in 2008, and Zale Corporation (NYSE:ZLC) is coming off a difficult first quarter. Even mall-based players including Macy's (NYSE:M), Nordstrom (NYSE:JWN) and J.C. Penney (NYSE:JCP), which sell jewelry at more affordable, prices have been facing some headwinds.

Long Term, She Could Still Sparkle
Although Tiffany's short-term prospects have been tarnished by the recent economic downfall, there are a few things that make me think that I should keep an eye on Tiffany for long-term performance. After all, the company is no stranger to recession; in fact, it traces its history back to before 1900, so it's clearly survived some difficult periods before. In addition, according to its third quarter release, "the Company operated 204 TIFFANY & CO. stores and boutiques at October 31, 2008 (85 in the Americas, 96 in Asia-Pacific and 23 in Europe), versus 181 locations a year ago (78 in the Americas, 87 in Asia-Pacific and 16 in Europe)." This geographic diversity should help Tiffany survive the downturn and perhaps even thrive in the long run.

At the end of the day, even if Tiffany does put up $2.25 to $2.30 a share, that's not horrible given that we are talking about a stock that trades at $21 and change and considering the environment in which it's operating. Finally, Tiffany has a solid history of making dividend payments, which should make it a more attractive pick for investors in a bear market. If the company is able to keep returning money to shareholders, this would be yet another plus to holding the stock. (Read The Importance Of Dividends, to learn more about this lucrative distribution.)

Bottom Line
I'm not expecting too much from Tiffany in the near-term. In fact, I think the shares could be under pressure over the next few quarters and I'm uncertain about how 2009 will shake out. However, over the long term, I think that Tiffany has the potential to make a comeback and add some sparkle to a patient investor's portfolio.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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