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What Investors Should Know About This Leading Luxury Brand

By Motley Fool Staff - Oct 10, 2017 at 12:37PM

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The Industry Focus team offers an overview of the world renowned jewelry retailer.

Tiffany & Co. (TIF) lays claim to one of the most bankable global luxury brands on the planet. While the company's stock has posted impressive gains over the past 12 months, shareholders still harbor concerns over long-term headwinds, including the company's ability to adapt to shifting consumer preferences.

In this segment of Industry Focus, the team presents an overview of the company's biggest strengths and what lies ahead.

A full transcript follows the video.

This video was recorded on Oct. 3, 2017.

Vincent Shen: For high-end retail, this is not something we cover very often on Industry Focus. We want to look at Tiffany & Company, ticker TIF. This is a luxury brand with a lot of history and cachet. Charles Lewis Tiffany founded the business 180 years ago, and I'm sure many Fools are familiar with the reputation of the company has when you think about the legendary blue box, and how regularly the company is featured in popular culture decade after decade.

The company states outright in its 10-K that the brand is its single most important asset, and it'll invest heavily to maintain its brand perception. That means premium customer service, paying for spots for its stores in high-end malls and luxury areas, selling lots of expensive diamonds and precious stones. Jewelry makes up 90% of the company's business. Specifically, products with diamonds make up almost 60% of annual revenue. Asit, the stock is up about 30% in the last year, handily outperforming the broad market. Can you tell us about some of the latest developments at the company?

Asit Sharma: Sure. The most important development begins with the top line. Sales have dropped about 6% over the last two years. In 2015, Tiffany & Company booked $4.25 billion in sales, and that's dropped over the last two years to about $4 billion in 2016. So as a result, Tiffany replaced its CEO Frederic Cumenal, who was only there for 22 months, with Alessandro Bogliolo in July.

Shen: Good timing there.

Sharma: Tiffany & Company, the next CEO you hire, can you please give us a name that's easier to pronounce? But having said that, Bogliolo is the former CEO of Italian jeans and fashion house Diesel Clothing Company, and he also had a long stint in Bulgari & Company, which, for those of you who love high-end fashion and maybe live in a big city, New York, Chicago, you've certainly seen these beautiful stores and their beautiful products, a worthy competitor to Tiffany & Company.

So Bogliolo's mission is to expand Tiffany's cachet, as Vince mentioned, to a younger demographic, to millennials, to revitalize the brand without impacting that strong resonance it has as an aspirational brand, and a brand that, at the end of the day, stands the test of time. So those are the most recent developments for Tiffany & Company.

Shen: I would say, the timing there, by the way, you mentioned, of the CEO was perfect, because his official start date happened to be yesterday. As we watch the progress the company makes, it's really starting day one right now. Some big opportunities that you see management mention and see them play out in the numbers a bit, there's this new leadership change, they talk about new product categories that are intended to appeal to some of those younger consumers that you mentioned, they talk about the growth of their online sales, which are still a small portion of the company's business at this point, I believe 6% as of the end of their physical 2016. Then, they also have their international footprint to lean on.

You'll see that going back to some of the quarterly reports, you'll notice a trend in that the Asian markets, which the company breaks down into Japan and Asia-Pacific. And for that Asia-Pacific region, China makes up over half of that, those regions have tended to deliver strong results, either flat or positive growth compared to some of the declines in the company's biggest market, the Americas and the U.S. specifically, which makes up almost half of all revenue.

I feel like a company like this will face some cyclical challenges in that economic downturns will often hurt luxury sales. The company struggled a bit during the financial crisis.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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