Japan's recent threefold disaster leaves many investors not only cognizant of the human tragedy, but also wondering about their own stocks' exposure to the country. Tiffany (NYSE: TIF) may look sparkly today, but Japan's plight will make its road ahead a rocky one.
Tiffany's fourth-quarter net income from continuing operations increased 31%, to $181.2 million, or $1.41 per share. Total global sales jumped 12%, to $1.1 billion; on a constant exchange rate basis, sales jumped 11% and same-store sales increased 9%.
Clearly, Tiffany delivered a decently festive quarter, especially compared to holiday slowdowns at companies such as Wal-Mart (NYSE: WMT). More affluent consumers lapped up Tiffany's luxury, undeterred by poor economic conditions.
However, investors shouldn't be too dazzled by Tiffany, which got well and truly rattled by the Japanese earthquake and the subsequent tsunami and nuclear crises.
Nearly one-fourth of Tiffany's 233 stores are located in Japan, where well-heeled consumers favor its brand. The disasters directly affected Tiffany stores in the Kanto and Tohuko regions; normally, they generate more than half of Tiffany's Japanese sales. In response to store closings and reduced operating hours in those regions, Tiffany cut its first-quarter earnings outlook to $0.57 per share from $0.62. Worse yet, the company couldn't provide "meaningful" predictions about Japan sales beyond the first quarter.
This epic disaster has hurt Japan's entire economic outlook, and companies like Tiffany will likely face leaner times in the aftermath. Other American companies with a lot at stake in Japan include Coach (NYSE: COH), Rambus (Nasdaq: RMBS), and Aflac (NYSE: AFL), all of which rely on Japanese consumption for more than 15% of their sales.
Given major economic and political uncertainty in the U.S. and abroad, investing in luxury-goods makers now looks riskier than before. Although I've long considered Coach an exception to that "fear luxury" theory, its exposure in Japan may prove me wrong in that regard.
Even outside Japan, rising costs are also driving Tiffany to hike prices on its already costly baubles. Although the company said customers have seemed open to the higher tickets so far, there's no guarantee they'll remain so willing to shell out in the future.
Hot on the heels of its earnings announcement, Tiffany shares rose more than 5% -- but investors who pick up the stock today may regret their impulse purchase later on.
What do you think? If you feel more bullish on Tiffany, state your case below, or add Tiffany to your watchlist.
