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business newsTiffany Gives Investors the Old Razzle Dazzle
By
Justin Sharon
Mar 21, 2011 5:00 pm
Shares ended up more than 5% after fourth quarter per share earnings from continuing operations of $1.44 beat Street estimates by a nickel propelled by stellar sales of silver and diamonds.
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Shares in the Fifth Avenue fine jeweler founded in 1837 ended up more than 5% after fourth-quarter per share earnings from continuing operations of $1.44 beat Street estimates by a nickel propelled by stellar sales of silver and diamonds. Profit rose 29% in the period and CEO Michael Kowalski hailed a “global expansion that has provided … robust and sustainable growth.” Indeed, for the first time in its storied history the upscale outfit reported sales were roughly evenly divided between the US and overseas. Its upscale engagement rings, gemstones, and glassware sold like gangbusters, sending overall revenue up 12% to $1.1 billion, and comp store sales gained an impressive 9% globally on a constant currency basis. Good growth was again evident in the Americas (+10%), Europe (14%), and especially Asia, where an emerging affluent class in search of bling things sent sales surging 25%. Meanwhile gross margin rose to 60.9% from 58.7% amid signs the company’s price hikes successfully stuck.
Clearly high-end consumers have rediscovered their taste for glitter amid an improving economy. Granted, today’s percentage gain -- the largest since last May -- must be seen in context of a stock that lost 6% along with other luxury retailers last week on concerns about the Japaneses earthquake. In fact, Tiffany now expects first-quarter sales to slide 15% in the country, and has accordingly reduced its current quarter EPS forecast to $0.57 from $0.62. Japan’s 56 stores amount to fully 18% of worldwide sales, and the shops in both Tohoku and Kanto were largely closed last week even as Tiffany’s 700 employees are in the main back at work. Still, analyst Brian Sozzi at Wall Street Strategies noted that “the hit to earnings” from the quake and subsequent tsunami “is not as much as the market feared.”
Commodity cost pressures could constrain upside potential, and online upstart Blue Diamond (BLUE) can offer, if not quite Tiffany’s cachet, then certainly competitive prices. But while shares may no longer be a free lunch at these levels, plenty of investors will still be willing to take breakfast at Tiffany’s.
Please see ‘Pink Diamond’ Fetches Record $46 Million, Four Reasons Tiffany Is Dazzling Investors, and Two Ways To Play: Tiffany a Diamond in the Rough?
Carly, we hardly knew ye. What must T-Mobile’s Canadian cutie, who has lately been urging us all to “step up to 4G,“ make of AT&T's (T) $39 billion bid for her employer? Wall Street certainly seems to approve, since our headline upgrade awoke to a couple of calls raising Ma Bell’s rating on news it will purchase T-Mobile from Deutsche Telekom in a cash and stock deal, but will regulators look as kindly on Sunday’s surprise combination, which would create comfortably the country’s biggest wireless behemoth?
Though both boards have issued their approval, expect the FCC to look long and hard at how such a proposed giant may crimp competition. Even if green-lighted, divestitures may well be required amid antitrust issues and any deed won’t be done for another year at the earliest. As we saw with AT&T’s $16 billion link-up with SBC Communications in 2005, such monopolistic concerns can be overcome but don’t bet on it being consummated, at least in its current form. As for the price, the proposed transaction of $25 billion cash plus $14 billion stock equates to 7.1 times 2010 estimated adjusted EBITDA. Forrester Research analyst Charles Golvin wrote in a note that costs won’t “come down nearly as fast as customers would like, since AT&T and Verizon Wireless (VZ) combined would own nearly three out of every four wireless subscriptions in the US.”
AT&T has made an undeniably bold move, one that removes a major competitor at a stroke. Expect today’s bullish stock reaction to be replaced by merger doldrums should the deal drag on for an interminably long time however. Now, if only the telecom titan could figure out how to use its own phones…
AT&T, T-Mobile Merger Could Be Disastrous for Subscribers, AT&T Still Ranked the Worst Mobile Provider, and T-Mobile and Microsoft: The Losers of Cloud Computing answers any hangups you may have.
This being the first full day of spring, it of course snowed in New York City, which will surprise no one who has had to endure Gotham’s winter without end. But at least Bed Bath & Beyond (BBBY) may be benefiting from spring cleaning of sorts. Shares ended up sharply after analysts at FBR Capital raised their rating on the 40-year-old New Jersey home furnishings outfit to Market Perform from Underperform. The broker also established a $45 price objective.
Its upgrade was essentially due to valuation with shares having underperformed both peers and the overall market since August. BBBY reported robust results for its most recent quarter (Q3), with sales, operating profit, and EPS all ahead of expectations. Total revenue rose a tidy 11% annually to $2.2 billion, and a new $2 billion share buyback plan is another positive catalyst.
However, headwinds remain. February existing home sales, out today, fell a horrific 9.6%, which hardly augurs well for future growth. And a researcher at Oppenheimer cut the rating earlier in the month on increasing concerns higher cotton prices could hurt margin expansion. At least, with its laundry baskets apparently selling for $600, the company if not shareholders aren’t about to lose their shirts.
Also check out Forget Gold, Cotton’s Up 60%, May the Best Brand Win: Bed Bath & Beyond vs. Linens ‘N Things, and Could Investors Clean Up With Bed Bath & Beyond?
On an otherwise excellent day in equities, with the Dow up by triple digits for its best three-day gain of 2011, one of its key components still suffered. Shares in Kraft Foods (KFT) could clearly, in the unfortunate formulation of its ad for Shake N’ Bake, “use a lift.”
The confectionery powerhouse, whose pleasingly plump brands include Nabisco, Planters, Velveeta, Ritz, Chips Ahoy, and the recently acquired Cadbury, was today taken from Overweight (no irony intended) to Neutral at JP Morgan. The brokerage house also trimmed its price target on the Maxwell House maker by $4 to $34. Analyst Terry Bivens cited both the loss of a licensing agreement with Starbucks (SBUX), which could cut this year’s EPS by $0.04, and “challenges with domestic pricing and Cadbury.”
The world’s second largest food company offers an attractive 3.76% dividend yield and counts Warren Buffett among its admirers. But against a backdrop of rising commodity costs, and having lost its CFO only last week, investors may want to step to the sidelines for now.
Kraft CFO Timothy McLevish to Step Down, MV Editor-in-Chief Kevin Depew Weighs In, In Attempt to Goose Sales, Kraft Suggests Making Fudge With Velveeta, Should Starbucks Buy Peet’s to Replace Kraft? have related research.
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
No positions in stocks mentioned.
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