Tiffany's Shares Move Lower After Its Fourth-Quarter Report

Tiffany & Co. , the global manufacturer and retailer of fine jewelry and other luxury products, has just released its fourth-quarter report to cap off fiscal 2013. The stock moved lower in the trading session that followed, so let's take a thorough look at the results to determine if we should buy on this weakness or if we should avoid investing in Tiffany for now.

Source: Tiffany's Facebook


The quarterly results
Tiffany released its fourth-quarter report before the market opened on March 21 and the results came in slightly below analysts' estimates; here's a breakdown and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $1.47 $1.52
Revenue $1.30 billion $1.31 billion

Source: Benzinga

Source: Tiffany's Pinterest

Tiffany's earnings per share increased 5% and revenue increased 5.1% year-over-year, as global comparable-store sales grew 6%. Sales were strong in all regions on a constant-exchange-rate basis, with growth of 7% in the Americas, 11% in the Asian Pacific, 8% in Japan, 10% in Europe, and 47% in the 'Other' region, which includes the high-growth United Arab Emirates.

Gross profit rose 7.5% to $785.61 million and the gross margin expanded 140 basis points to 60.5%, which showed that Tiffany did not need to offer large promotions during the holidays to draw in customers. Overall, Tiffany had a strong quarter, regardless of whether it met analysts' expectations or not, and I believe the weakness in its stock will only be temporary. 

Source: Tiffany's Instagram

What will fiscal 2014 hold?
In the report, Tiffany also provided its outlook for fiscal 2014 with a call for the following results:

  • Earnings per share in the range of $4.05-$4.15
  • Revenue growth in the high-single-digits
  • Open 13 new stores and close four existing stores
  • Free cash flow of at least $400 million
These projections would result in earnings per share growing 8.6%-11.3% from fiscal 2013, below analysts' consensus estimate which called for growth of 14.7%. Analysts had also projected revenue growth of 7.6%, so Tiffany gave guidance in-line with this estimate. If Tiffany can accomplish what it guided for, and I think it can, it would result in another record-setting year for the company and the growth would support a much higher share price. For these reasons, I would buy Tiffany at current levels. 

How was the quarter in comparison with those of competitors?
Michael Kors and Coach , two of Tiffany's largest competitors, have also recently reported their quarterly results. Michael Kors released its third-quarter report for fiscal 2014 on Feb. 4 and Coach released its second-quarter report for fiscal 2014 on Jan. 22; let's see how Tiffany stacked up versus these two luxury giants:

Metric Tiffany Michael Kors Coach
Earnings Per Share $1.47 $1.11 $1.06
EPS Growth 5% 73.4% (13.8%)
Revenue $1.30 billion $1.01 billion $1.42 billion
Revenue Growth 5.1% 59% (5.3%)

Source: Company Earnings Reports

Source: Michael Kors' Instagram

Michael Kors reported an absolute blowout quarter, driven by a strong 27.8% increase in comparable-store sales. The company saw its gross profit rise 61.6% to $619.5 million and its gross margin expanded 100 basis points to 61.2%.

Coach, on the other hand, reported a dismal quarter and it was held back by a 13.6% decrease in North American comparable-store sales. Its gross profit fell 9.4% to $982.7 million and its gross margin took a big hit, declining 300 basis points to 69.2%. It is clear that the promotional retail environment of the holiday season proved no match for Michael Kors and Tiffany, but Coach had a very difficult time.

In summary, Tiffany and Michael Kors represent good investment opportunities today, but avoid Coach until it can get back to showing year-over-year growth. 

The Foolish bottom line
Tiffany's quarterly results and earnings expectations for fiscal 2014 may have missed expectations, but I believe the weakness in its stock presents a buying opportunity. The company appears well-positioned to continue on its path of growth and this would support a rise in its share price. Foolish investors should strongly consider initiating positions on any further weakness and holding on to them for several years.

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The article Tiffany's Shares Move Lower After Its Fourth-Quarter Report originally appeared on Fool.com.

Joseph Solitro owns shares of Michael Kors Holdings. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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