Passing the Buck on Poor Performance
Aug 29th 2012 9:58AM
Updated Aug 29th 2012 10:54AM
I love a good corporate copout. The basic template has a company failing to do as well as it should have, finding a reason that isn't its fault, and then making that the explanation for the failure. There are a few camping gear companies in England that are forever missing earnings because it's too hot -- or too cold. Tiffany (NYS: TIF) just pulled a classic, blaming poor sales on "economic weakness in a number of markets." Yet other companies somehow managed to dodge the economy. How odd.
A little late for trimming the verge
In Tiffany's defense, everyone is facing an uphill battle, as countries bob under the waves of recession, gasping in the salty air of growth every time their heads break the surface. But that's the backdrop to the scene, not the scene itself. Tiffany has chosen to cast the whole economic crisis as the scene, instead of focusing on its shortcomings. Macroeconomic events are most dangerous when you do nothing to address them, and Tiffany's same-store sales drop of 5% highlights the company's failure to act.
If this was really just a function of the economy, then other companies would be feeling the same sting. But Michael Kors (NYS: KORS) has consistently upended that theory. Last quarter, Kors grew same-store sales by 37%. Maybe it's operating in some sort of recession-proof bubble, but I have my doubts. Instead, Kors is making its products desirable, even in a poor economy. That shows the power that branding and marketing have over consumer purchases, and it shows how poorly Tiffany is performing.
Tiffany isn't letting all this bad news go to its head, though. It actually increased the number of stores it was planning to open this year, bumping up the count from twenty-four to twenty-eight. That includes another New York City store, which should hopefully help bring attention to its sluggish flagship. Sales at the Fifth Avenue store fell 9% last quarter, in contrast to its strong 2011 performance.
A triangle of silver scales
Maybe Kors is the exception that proves the rule -- so let's look at Blue Nile (NAS: NILE) and Zales (NYS: ZLC) instead. While Blue Nile doesn't run retail stores like Tiffany, it deals in the same sort of merchandise, so it probably had a rough time last quarter, right? Actually, sales grew 13%, which seems like an odd thing to have happen in such dire economic times. But Blue Nile does focus on lower-end diamonds, the kind you find in gutters, I suppose. Maybe it was all that discounting and online selling that made the difference.
Zales has actual stores -- just like Tiffany. It should be in the same boat, riding out in those recessionary waves, jamming rings on to hands as they wave around in the surf. But instead, Zales grew same-store sales by 8% last quarter. Revenue also increased 8%, and gross margins grew at the same time.
The bottom line
Of course, not all of these things are exactly the same, and a lot is happening below the surface. Zales still lost money in its last quarter, whereas Tiffany made money. Blue Nile sells diamonds, but it's not a classic brand name. And while Michael Kors grew sales by targeting a similar customer set, it did so by selling a much wider range of price points. Tiffany is the definition of a luxury brand, and so it is more sensitive to the ups and downs of the upper class than any other company listed here.
But that doesn't mean that it can sweep its performance under the rug. Companies that don't live up to sales expectations can't blame a bad economy every time, and then ignore the strong economy when they do well, claiming to have strengthened their brand or connected with consumers like never before. Tiffany needs to make changes if it's going to grow during tough times. I like the expansion of locations, but I'd like to see even more, especially with the holidays coming up.
Even though I probably won't have the spare cash to pick much jewelry up, I'm hoping to see Tiffany ads littering the field of view as we get toward the end of the year. And one day, I hope to have enough spare cash to actually buy something. If that sounds like you, check out the Fool's special report on middle-class millionaire-makers. These are stocks that Wall Street is overlooking, but that could help you into the Gatsby class. It's free for readers -- get your copy today.
The article Passing the Buck on Poor Performance originally appeared on Fool.com.Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. But he does like baubles. Motley Fool newsletter services have recommended buying shares of Blue Nile. Motley Fool newsletter services have also recommended a call spread strategy on Blue Nile. Motley Fool newsletter services have recommended shorting Tiffany. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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