Nomura Positive on Tiffany (TIF) Into Investor Day

Tiffany (NYSE: TIF) is hosting its Investor Day on Tuesday, April 12 and Nomura analyst, Robert Drbul, published a preview describing why this could be a positive catalyst for TIF shares. No change to Buy rating or $90 PT.

This Investor Day, the most extensive lineup of executives in years, should enable investors to gain a fresh perspective on this company and better understand the numerous initiatives underway aimed at improving the LT positioning of the brand and driving improved financial performance. Investors should embrace the magnitude of change underway at the company, as it has experienced and embraced an infusion of new blood into the organization. They would note that 5 of the 8 presenters have joined the company in the last five years, including current CEO Frederic Cumenal.

Tiffany is focused on being the best luxury brand in the world, as opposed to the largest, which is reflected in part by management’s focus on comp growth over sq. ftg. growth to meet financial targets (we expect ~2% square footage growth in FY16/17 vs. +4% in FY15). The impact of relatively recent management transitions should be positive as well, including current CEO Frederic Cumenal’s focus on increasing customer engagement and improving the in-store experience, incl. via renovations, relocations, and select closings. The analyst expects increased marketing spend (7.4% of sales in ’15 vs 6.3% in ’14) and product newness to enhance Tiffany’s brand positioning.

The analyst is encouraged by a renewed emphasis on profitability under CFO Ralph Nicoletti, and despite the top-line challenges the company is facing, they note continued gross margin stability (+100bps to 60.7% in ‘15). They see opportunity for further expansion through lower precious metal costs in ‘16 (+30bps), in addition to price increases and manufacturing initiatives, and expect lower rough diamond prices to benefit gross margins in FY17. There are multi-year cost saving opportunities through the ongoing global procurement function, incl taking a more coordinated and granular approach to spending and negotiating better pricing.

The analyst believes the risk reward ratio for is attractive. The lapping of FX compares, the benefit of lower input costs, and the restoration of its global pricing paradigm should serve as NT positives. For TIF, valuation remains the silver lining, with shares currently trading at 17x our FY17 EPS est. of $4.30 vs. a 19x 3-yr avg. This represents an 11% discount, and they believe as the numerous LT initiatives reinvigorate the top-line, combined with continued improved profitability throughout the company, the shares will be awarded a higher multiple.

For an analyst ratings summary and ratings history on Tiffany & Co. click here. For more ratings news on Tiffany & Co. click here.

Shares of Tiffany & Co. closed at $73.77 yesterday.

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