Tiffany Is Sparkling: Should You Buy?

Source: Tiffany.

Tiffany (NYSE: TIF  ) rose by a whopping 9.15% on Wednesday after the company reported better-than-expected results for the first quarter of fiscal 2014. Is this an exaggerated short-term reaction from investors, or is Tiffany really performing that well?

Shining around the world
Sales during the quarter ended on April 30 increased by a strong 13% versus the same period in the prior year to more than $1 billion. That number was considerably above analysts' forecasts of $953 million for the quarter. Sales excluding the impact of foreign exchange fluctuations jumped 15% on the back of an 11% increase in comparable-store sales.

Performance was remarkably strong across different geographies. Sales in the Americas increased 8% to $439 million, on a constant exchange rate basis, and total sales in the region rose 9%, while comparable-store sales increased by a healthy 8% versus the same quarter in the prior year. 

Source: Tiffany.

This is quite an impressive performance from Tiffany in the Americas, especially considering that this is a relatively highly penetrated market for the company, and that the retail environment in the U.S. has been notoriously weak over the past several quarters.

Total sales in the Asia-Pacific region jumped by 17% to $261 million, sales adjusted for currency fluctuations increased by an even stronger 19% during the period, and comparable-store sales in the Asia-Pacific region grew 10% versus the same quarter in the prior year. 

Asia is becoming a key market for Tiffany, and the company is generating impressive performance even though it didn't open any new stores in the region during the past quarter. This bodes remarkably well when it comes to evaluating growth opportunities in the years ahead.

Sales in Japan were particularly strong as consumers anticipated their purchases in reaction to the coming increase in the nation's consumption tax rate. Sales in the country surged 20% year over year to $174 million, while revenues adjusted for currency fluctuations increased 29%, and same-store sales grew by an explosive 30% in Japan during the quarter.

Revenues in Europe came in at $101 million, a 9% increase versus 2013. Revenues adjusted for currency fluctuations grew 2%, while comparable-store sales fell 3% during the quarter. Other sales increased 39% to $37 million during the first quarter of fiscal 2014.

Tiffany opened four new stores and closed one location during the quarter. The company operates a total of 292 stores -- 121 in the Americas, 72 in the Asia-Pacific region, 55 in Japan, 38 in Europe, five in the United Arab Emirates, and one in Russia -- versus 275 total stores at the end of the first quarter in 2013.

Management plans to open 13 new stores during 2014, and the company will also be closing four smaller stores. Tiffany forecasts a 3% net increase in company-operated locations and a net 4% increase in gross square footage during the year.

Glowing profitability
Management is doing a great job at translating growing sales into increased profitability for shareholders. Gross margin expanded 200 basis points to 58.2% of sales during the quarter because of lower product costs and "increases taken across all product categories and regions," among other factors.

That Tiffany is able to benefit from its pricing power while generating healthy sales growth speaks wonders about the value of the brand, especially considering that many companies in the consumer business are relying on aggressive discounts to sustain sales lately.

Source: Tiffany.

Operating income increased 48.6% to $209.8 million, versus $141.1 million in the same quarter during 2013, and operating margin increased 490 basis points to 20.7%. 

Net income jumped by an impressive 50% versus the prior year to $125.6 million, while earnings per share came in at $0.97 during the quarter, materially better than the $0.78 per share that Wall Street analysts expected on average.

Furthermore, management raised its earnings guidance for 2014, as the company expects to earn between $4.15 and $4.25 per share, versus a previous guidance of $4.05 to $4.15 per share. This new guidance compares favorably against analysts' estimates of $4.16 for the quarter.

Foolish takeaway
Performance was rock-solid across the board, with sales growing at an impressive rate on a global scale and profit margins expanding on the back of strong pricing and efficient cost management. All that glitters is not gold, but Tiffany's results during the last quarter were really stunning.

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