Breakfast with Tiffany's (TIF): Competiton Sets Earnings Bar High (SIG, ZLC, More...)

November 23, 2010 2:34 PM EST
Tiffany & Co. (NYSE: TIF) is lower ahead of their third quarter earnings report, expected out before the market opens tomorrow, November 24. The stock is down 3% in afternoon trading today.

The jeweler is expected to report an EPS of $0.37 on revs of $653.32 million. For the second quarter, 2010, Tiffany's reported an adjusted EPS of $0.55 on revs of $0.55 on revs of $668.8 million, compared to the consensus EPS of $0.53 and revs of $690.24 million. For the third quarter in 2009, the iconic brand posted an adjusted EPS of $0.33 on revs of $598.2, stronger than the consensus EPS of $0.24 and revenues of $573.75 million.

Shares gained 22.4% through Q310, to $53.00 at the end of October. The stock is up 8.7% since the end of the quarter, and 33% on the year so far.

Tiffany is going for a forward P/E of 21.8x FY10 EPS estimates, and 19.3x FY11 EPS estimates.

Data from Bloomberg has 14 analysts with a Buy rating on HPQ, 6 with a Hold, and one suggesting to Sell. The analyst price target average is $58, with a high of $65 and a low of $42.

Tiffany recently declared a $0.25 quarterly dividend, which is yielding 1.7% on an annualized basis.

Probably one of the biggest analyst changes came in September, when Goldman Sachs downgraded the common shares from Neutral to Sell. Goldman noted unfavorable risk/reward as they see slowing EPS beats and peak valuations.

Goldman is also looking for an quarterly earnings beat, seeing an EPS of $0.36. A victory would likely be attributed to "(1) strong high-end spending like other luxury retailers with international exposure and (2) strengthening [foreign exchange] rates should boost EPS and tourist spend." They note that stocks with demanding set-ups have traded lower, amid strong earnings beats. They have maintained their Sell rating, noting increasing FY11 margin pressure (increased diamond prices, with gold and silver increase 20% to 30% each), and a peak valuation (with the stock trading at 3x premium valuation compared to history and 3.5x relative to peers). Margin pressures hampering EPS growth give them little reason to expect a multiple expansion.

Deutsche Bank is looking for revs of $664 million, slightly decelerating sequentially led by tougher comps. Americas should be stable at 4% organic growth Y/Y, and a strong Other Asia segment, with 12% organic growth there. Japan is expected to be lukewarm, and Europe will also be soft. Net margin of 14% (up 290 basis points from Q309) on a gross margin of 57.5% (which will be up 270 basis points Y/Y). Deutsche has a Buy rating on the shares with a price target of $58.00.

Signet Jewlers (NYSE: SIG) reported a solid third quarter, with EPS beating by ten cents, and revs of $641.8 million soaring past the consensus of $618.51 million. Gross margin also improved from 26.7% to 30.2% in the quarter.

Zale (NYSE: ZLC) also reported their first quarter earnings today, with with a narrower than expected loss of $1.30 (operating) and revs of $327 million. Gross margin also improved here, from 48.6% to 50.5%.

Comps were up 7.25 for Signet, and down 1.1% at Zale.

Tiffany & Co. is expected to release their Q310 earnings on Wednesday, November 24, 2010, at approximately 7:00am EST. Stay tuned to's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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