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Why Tiffany & Co. Rose 12.9% in March

By Demitri Kalogeropoulos - Apr 5, 2016 at 3:33PM

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Investors grew more optimistic about the retailer's business prospects last month.

What: Luxury jeweler retailer Tiffany's (TIF) stock rose 13% in March, according to data provided by S&P Global Market Intelligence.

TIF Chart

TIF data by YCharts.

The boost helped shares recover some of their losses, but investors remain in the red on the stock by roughly 17% over the last year.

So what: Tiffany announced holiday-quarter earnings results on March 18 that met consensus sales estimates while beating profit projections. Still, the numbers weren't encouraging.

Revenue fell 2% overall, and net income dropped by 5%, capping what management described as a tough year for the business. "Our financial results in 2015 were clearly disappointing," CEO Frederic Cumenal told investors in the quarterly earnings conference call. 

On the plus side, profitability improved by a full percentage point in fiscal 2015, with gross margin ticking up to 61% of sales as prices rose and input costs fell. Tiffany also managed strong free cash flow of $561 million, up sharply from $367 million over the prior-year period.

By comparison, online rival Blue Nile (NILE) also noted that challenging industry dynamics held sales back in Q4 ("growth was challenged by continued weakness from high ticket purchases and foreign currencies," management said). Nile's profit margin improved as well over 2015, but at 19% of sales, it's still far below Tiffany's stellar 61%.

Now what: Tiffany shareholders shouldn't expect a rebound in the short term. In fact, Cumenal and his team project that profits will decline in each of the next two quarters before growth returns in the second half of the fiscal year to leave overall earnings unchanged. The same factors that pinched sales and profits last year, including a strong U.S. dollar and uneven consumer spending, are likely to keep pressuring results in 2016.

Image source: Tiffany.

Meanwhile, Tiffany is investing in improving its product line, store experience, marketing, and supply chain, all with the aim of positioning for efficient growth as soon as the industry starts expanding again. "We believe [a stronger financial performance] is achievable as we execute on our strategic initiatives and as challenging external conditions abate," Cumenal said. The retailer's long-term forecast still calls for mid-single-digit sales growth and high-single-digit profit gains.

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