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Tiffany Earnings: What to Watch

By Demitri Kalogeropoulos – Updated Apr 14, 2019 at 10:51AM

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Previewing the jewelry giant's upcoming earnings report.

Thanks to a holiday-season sales update, investors already have a good idea about how well Tiffany (TIF) performed in its key fourth quarter. Yet shareholders are eager to learn crucial details, like profitability, that were missing from that mid-January announcement. The luxury jewelry retailer also owes shareholders a big-picture review of the year that just closed and a detailed outlook for 2019.

These numbers will take center stage when Tiffany announces its fiscal fourth-quarter results on Friday, March 22. Let's look at what investors can expect to see in that report.

A woman wearing diamond jewelry.

Image source: Getty Images.

Slowing growth

CEO Alessandro Bogliolo and his team pre-announced some slightly disappointing news in their annual holiday-season sales update. Revenue growth was flat for the period, they said, which should ensure a third straight quarter of decelerating gains. Comparable-store sales had grown by 7% in the fiscal second quarter and slowed to a 5% rate in the third quarter.

The holiday update noted that sales didn't budge in the U.S., fell slightly in China and Europe, and rose by 4% in Japan. These results were heavily impacted by volatile spending on the part of Chinese tourists in each of these markets. On Friday, we'll find out whether that pressure dissipated as the quarter progressed. Tiffany might also have some positive things to say about global economic trends at the start of 2019.

Check out the latest earnings call transcript for Tiffany.

Profit updates

Executives lowered their earnings outlook back in January, but that report didn't include any of the detailed profitability metrics that investors will receive this week. The biggest one to follow will be gross profit margin, which is up to 63.1% of sales over the first three quarters of the year from 62% in the year-ago period. Tiffany likely continued to benefit from a break in its input costs and a shift away from its wholesale diamond sales. But those gains will have been at least partly offset by the flat revenue result.

As for expenses, the outlook here is decidedly negative. Tiffany poured cash toward marketing and higher wages, in addition to bulking up the digital sales channel and spending heavily on store remodels. This resulted in a 15% spike in expenses last quarter, and management warned that this level of elevated spending should continue at least through the holiday season as a necessary down payment on future growth.

The detailed outlook

The company will issue an updated 2019 outlook that reflects all the latest sales trends from the past two months. As it stands, that forecast predicts a low-single-digit revenue boost that would mark a slowdown from 2018's mid-single-digit increase, but protect the company's multiyear rebound. Tiffany predicted back in January that the negative impact from falling Chinese tourist demand would start to lessen in the second half of the year, but management will be armed with better information for this week's update.

Investors will be especially interested to hear about the retailer's plans for bottom-line profitability, given that operating margin likely fell this past fiscal year, weighed down as it was by all the spending priorities. A second straight year of reduced operating margin might be hard for shareholders to accept, especially if it happens in the context of slowing revenue gains.

Demitrios Kalogeropoulos 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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