Everything is sparkling for jeweler Tiffany & Co. (TIF) right now, and in this segment from MarketFoolery, host Mac Greer and senior analysts Andy Cross and Jason Moser talk about why. Its latest quarterly report featured earnings up 11% and a guidance boost, and given the macroeconomic conditions, it probably should have. But as well as the company is doing at protecting the aspirational value of its brand, this might not be the time to open a new position in its stock.
A full transcript follows the video.
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This video was recorded on Aug. 28, 2018.
Mac Greer: Let's begin with Tiffany, the jewelry retailer, flat-out getting it done. Jason, better than expected earnings on some strong same-store sales growth. The stock up slightly. What's the headline here?
Jason Moser: I think the headline is, I helped this cause because my wife's birthday, I got her a Tiffany bracelet. We talked about this last quarter. My purchase was after that recorded quarter. I think this is the quarter where the Moser Effect came into play.
Andy Cross: It was the Cross Effect, too, for my anniversary.
Moser: There you go!
Greer: Is that true? What did you buy Jamie?
Cross: Just a little pendant.
Greer: When is the last time I bought my wife some jewelry? If you had to guess? I'll give you a hint. We've been married 13 years.
Cross: 13 years?
Greer: Yes. And then before that, I think the last time, it was like, I bought a mood ring in the fifth grade.
Moser: I'm sure that mood ring is probably a blazing red right now.
Cross: Do they sell mood rings at Tiffany?
Moser: Don't be scared to ask her what she wants. I will be very clear. The first thing I bought, I used my own judgment and intuition. Then we promptly returned it and got her what she really wanted. [laughs] As long she gets what she wants.
Greer: But you still you still get the credit. OK, so, back to the earnings. If I'm wearing my mood ring, what am I feeling when I look at these earnings?
Moser: This is the climate where Tiffany needs to be making its hay. Consumer confidence is higher than really ever before. It's the highest number recorded since October 2000. They need to be making their hay in these types of economic climates. And they're doing just that. Excluding currency effects, grew the top line 11%. Comps were up 7%. Really, it's the Asia Pacific region that is outperforming all. With that said, all geographic regions are performing very well. They raised earnings guidance, again, just from last quarter. They're going to ramp up some spending on the back half of the year to restructure some stores. They're going to go in there and redesign the New York City flagship store.
I think what they do very well over long stretches of time, they've demonstrated the ability to protect that brand. They don't resort to fire sales, they don't resort to sales or anything like that. What it does, it creates this aspirational brand that consumers will pay up for. That helps them maintain that margin line, helps them maintain that exclusive brand. We talk a lot about affordable luxury. Tiffany is real luxury. And they've done a good job protecting that.
Cross: That's a great point, Jason. Gross margin was 64% vs. 62.5%. They're making more money in what they're selling. The gross margin dollars numbers were up 15%, and across all the lines. The jewelry collection, the engagement jewelry, and designer jewelry, rose, 18%, 8%, and 5% respectively on those numbers. Really, they're seeing it across the board, all regions. It's also not just tourism, which is a big driver of Tiffany's sales. Also, they talked about how their local consumers are buying more of Tiffany products.
Greer: OK, so what about the stock?
Moser: You know, this is a tricky stock. It's the type of retail brand that, over long periods of time, has demonstrated some pretty good resilience. But I think it's one you have to be very picky with. You want to buy this stock in times of macroeconomic concerns, when this is a stock that's down with all of the others out there. Again, as I said, they protect that brand very well. Even when economic conditions are tough, they don't resort to pulling levers for those fire sales and generating more traffic. They take the good with the bad and they wait out those periods of tough time. For me personally, I would rather wait for this stock to get hammered on general macro concerns before buying it. Now, with that said, when that does happen -- because it will again -- this is a stock I think worth having at the top of your list if you're looking for some good retail exposure.
Cross: I have to say, it's a three-bagger over 10 years and it beats the market. It's really proven itself to be not just a brand but also a stock that can last through time.