Tiffany Remains a Good Buy

According to a new research from Departures magazine and Ledbury Research, North America is the most important market for the growth of luxury products over the next five years. The region is followed by East Asia, Western Europe, Eastern Europe, and then Central and South America in descending order. This was corroborated by a Credit Suisse report that 94% of millionaires in 2013 were created in the U.S.

Let's take a look at the jewelry end of the luxury market and see how Tiffany (NYSE: TIF  ) , Signet Jewelers (NYSE: SIG  ) , and Zale (UNKNOWN: ZLC.DL  ) have performed and if their performance corroborates these research findings and projections.

Examining Tiffany
Tiffany has strong brand equity as a result of a long and rich history of 176 years, so it is able to command higher prices. Its ability to command higher prices and a 1% increase in comparable-store sales, or comps, fueled a 4% year-over-year revenue jump in the Americas in the previous quarter. Worldwide sales surged 7% in dollars and 11% on a constant-exchange-rate basis as compared to the year-ago quarter.

Growth was strongest in the Asia Pacific, or APAC, region, which witnessed a robust 27% sales increase on the back of double-digit comps growth in Greater China and in most other markets in the region. This growth was again driven by a higher average selling price per unit and more units sold. The strong growth in the APAC region goes to show the importance of Tiffany's global expansion initiative.

The stellar growth in the APAC region was in-line with another study, which projected that the region is expected to account for around 31.2% of the global market for luxury jewelry and watches, as it is expected to become the fastest-growing region from 2012-2017. However, comparatively muted growth in North America can be a blessing in disguise, as it leaves a good growth opportunity if Ledbury Research's projections hold their ground going forward. This is something that investors can keep a watch on.

Tiffany launched a redesigned website in October, and it is more engaging with greater storytelling and video content. The online initiative is complemented by e-commerce sites in 13 countries and informational sites in a number of additional countries and in nine languages. It has features like cross selling, which keeps visitors engaged for a longer time. This could be a growth driver going forward.

Despite stellar third-quarter results, Tiffany was not without problems. A joint venture with Swatch ran into problems and landed in an arbitration court in the Netherlands. In December, Tiffany was ordered to pay Swatch $448 million for the failed joint venture. This will impact the full-year earnings guidance, which stood in the range of $3.65 to $3.75 per diluted share prior to this ruling.

Two more options
Signet, like Tiffany, is also looking at its e-commerce channel for driving growth going forward. This channel grew 16% year over year during the third quarter, and Signet is investing in digital initiatives for further growth. It has strengthened its digital ecosystem by relaunching the Kay and the Jared mobile websites in addition to creating mobile apps for both brands. In the U.K., it is rolling out tablets to its stores.

Signet's revenue growth of 7.7% year over year was fueled by 3.2% comps growth versus the year-ago quarter. Going forward, the company is expecting to continue the growth momentum by adding 75 to 85 new Kay and Jared stores in addition to its investments in digital initiatives and purchase of the diamond-polishing factory in Botswana.

Whereas Signet has turned around successfully after emerging from the recession, Zale is still in the process of crawling back from red to black territory. It has registered 12 straight quarters of positive comps. It has also been aggressively expanding its store count, besides expanding the product portfolio, to drive growth. For instance, its store count has grown 20% since July from 740 to 900 stores.

In Zale's first quarter, comps grew 4.4% versus 3.9% in the year-ago quarter. On the back of positive comps and new store openings, revenue increased 1.4% from $357.5 million to $362.6 million. As the turnaround progresses, Zale could turn into a good investment opportunity.

Bottom line
Tiffany might have suffered a minor setback as a result of the lawsuit, but the company looks good fundamentally. It is witnessing good growth in different markets and is also focusing on the online aspect. It also has a dividend yield of 1.6%. So, investors looking to benefit from the growing number of millionaires in the U.S. and fast-growth markets in Asia should definitely consider Tiffany for their portfolio.


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