Diamonds Are a Girl's Best Friend: Tiffany’s Best Friend Is Asian Growth

When it reported its latest quarterly results on Wednesday, May 21, 2014, shares of high-end jewelry manufacturer and retailer Tiffany (TIF) soared to an all-time high thanks to solid revenue and profit growth. The retailer, considered by many to be the pinnacle of high-end jewelry, has continued to make strides over the years as many competitors have fallen behind.

While it is clear that Tiffany continues to benefit from its brand name domestically, many investors may be missing out on the fact that much of its growth happens to be coming from Asia. This important fact might just be the key to future growth and the reason for investing in this top-notch jewelry retailer.

A stunning first-quarter performance
For the quarter ended April 30, 2014, Tiffany saw its global net sales rise 13% over last year's period to $1.12 billion. Excluding several one-time expenses which occurred in last year's first quarter, net earnings rose 41% thanks to larger profit margins and the increase in global sales. In fact, net earnings in the first quarter totaled $126 million, or $0.97 per diluted share, which is a huge profit gain compared to last year's first-quarter earnings of $84 million, or $0.65 per diluted share.

In terms of domestic sales, which still represent the biggest chunk of Tiffany's business, the company continued to perform well with domestic sales rising 8% to $439 million from $406 million in the first quarter of 2013. Total gross margin in the first quarter rose to a hefty 58.2% from 56.2% in the year-ago period -- this proves that Tiffany's is a premiere brand capable of charging hefty prices for its jewelry. Tiffany's total results were not the only bright spot. As the saying goes, "Diamonds are a girl's best friend," but Tiffany's may have found something even better. 

The real reason for Tiffany's strong growth
Within Tiffany's latest quarterly results, which were quite good overall, was a standout performance from its Asian operations. Its Japanese operations saw a 20% rise in total net sales to an all-time high of $174 million with an increase in comparable-store sales of 30%. In addition, net sales for its Asia-Pacific region, which includes Australia and Greater China, jumped 17% to $261 million with a comparable-store sales gain of 10%. What is all the more impressive is that these growth trends abroad do not appear to be a one-time thing. 

Net sales growth by segment

While Japan experienced uneven growth, Tiffany's Asia-Pacific region results, including those for 2011, can only mean that in time its operations in this region may begin to rival its operations in the Americas in terms of profitability. This is not hard to imagine given that net sales for Asia in 2013 totaled $944 million while net sales for the Americas totaled $1.9 billion, given the growth rates in its Asian markets. 

Tiffany's competitors' best friend is the U.S.
Tiffany & Co.'s new best friend may be Asian growth, but this is not the case for its competitors Signet Jewelers Limited (SIG -2.79%) and Zale Corporation (NYSE: ZLC). For Signet Jewelers, which owns popular brands such as Kay and Jared, selling fine jewelry and watches is their primary business. However, unlike Tiffany & Co., Signet Jewelers operates in two divisions-the U.S. and the UK-with the U.S. division accounting for 82.2% of total sales in fiscal year 2013, while its UK division represented only 17.8% of the company's total sales.

 Zale Corporation is actually the least diversified of the three companies based on the fact that it operates only within North America despite purchasing much of its fine jewelry and other merchandise from the United States, India, parts of Southeast Asia, and Italy. Nevertheless, Zale Corporation operates numerous brands within North America, including Zales Jewlers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers, and Piercing Pagoda. While Zale Corporation is not experiencing growth overseas like Tiffany & Co., it posted comparable store sales increases in both its U.S. and Canada segments of 3.7% and 3.1% for the full year of fiscal 2013; however, total revenue for 2013 increased by only 1.1%. For now, Tiffany & Co. can celebrate its growth success in Asia while its competitors continue to fight for U.S. sales. 

Foolish takeaway
Tiffany's latest quarterly results were impressive -- almost every region posted solid growth. Not only have Tiffany's sales risen, its profits have risen as well -- margin expansion also took place. Investors would also be wise to keep their eyes on Tiffany's growth in Asia over the next few quarters.