Shares of Tiffany & Co. (NYSE:TIF) stock were down 3% by 10:30 a.m. Friday after the upscale jeweler reported fourth-quarter and full-year results. The luxury brand actually reported a mixed quarter and had some highlights in its annual report, but its first-quarter guidance seems to be making investors nervous.
Tiffany's performance: a mixed bag
Like most retailers Tiffany's key comparable metrics are growth in net earnings and sales (both net and comparable). Sustained growth, in comparable periods year over year, is necessary to fund Tiffany's continued store growth. For the fourth quarter and year, here is how Tiffany fared.
- For the fourth quarter, sales slid 1% to $1.29 billion, which missed analyst projections of $1.31 billion and comparable sales growth was flat year over year.
- However, Tiffany's net income of $196 million, or $1.51/share met analyst expectations. The result smashed Tiffany's results from the same period a year ago, but those numbers included a loss ($0.81/share) due to a legal settlement.
- Looking at the full year, Tiffany fared better. Worldwide net sales jumped 5% to $4.25 billion and net income of $3.73/share was more than double than the previous year. The previous year, again, included unfavorable charges due to a legal ruling and taxes but, excluding both items, Tiffany's net earnings were still 13% higher year over year.
At the very least, the results for the quarter and year were a mixed bag with equal parts positive and negative. For instance, while Tiffany's sales fell in the fourth quarter, on a currency-neutral basis, they actually rose 3%. Tiffany also opened six net new stores in 2014 and had positive comparable-sales growth for the year in the U.S., Asia-Pacific, and Europe. But a strong dollar, which was the reason for Tiffany's fourth-quarter sales dip, is causing the firm to trim its first-quarter guidance.
Tiffany vs. the U.S. dollar
Tiffany's management is predicting a bad first quarter, due to negative currency impacts from a strong U.S. dollar. Management now expects earnings to fall by roughly 30% year over year and net sales are projected to tumble 10%. This isn't news to many investors, because the stock has slid since the company reported weak holiday sales and trimmed its 2014 guidance just a few months ago, due to the strong dollar.
The reason the strong dollar hurts Tiffany is two-fold. Tiffany earns roughly half of its revenues overseas, but it reports in the U.S., where it is headquartered. That means Tiffany's overseas sales look weaker than they really are. For a strong company like Tiffany, a short-term currency impact like this is not a huge issue. On the other hand, management is now worried that the dollar has become so strong that it may impact U.S. sales. Tiffany does well when tourists visit its upscale stores and spend money; management is worried that the beefed up dollar is beginning to make international tourists more conservative.
Of the two issues, the impact of fewer tourist is probably the bigger threat to Tiffany, but neither issue should really concern long-term investors. A stock falling on currency-related earnings fluctuations can actually present a great buying opportunity. It was only a few months ago, prior to its weak holiday results, that Tiffany reported a strong third quarter with net sales jumping 5%. Long-time followers of this stock, and the specialty retail sector, know that fluctuations are commonplace.
Tiffany is a true aspirational brand and a household name, ranked in the top 100 of all retail brands by Interbrand. Any currency-related softness in the stock presents an opportunity for investors who want to buy an iconic brand and hold it for decades.