A Few Reasons Why Tiffany Is a Good Buy for the Long Run

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Dec 17, 2014

A few months back, there were serious concerns over consumer spending in the economy. Retailers were struggling with rise in input costs and lower demand for its products as consumers became extremely cautious about their spending. Hence, retailers witnessed lower revenue and shrinking margins. However, things seem to be improving now. There has been an increase in demand for consumer goods which is reflected in retailers’ performances. Tiffany (TIF, Financial), a premium specialty retailer and a high-end jeweler, is making good use of this opportunity.

A strong performance

Tiffany’s top line went north. Revenue was largely driven by higher product prices and expansion in the number of stores. It introduced new products such as the Ziegfeld collection which lured customers. Moreover, the company has done a commendable job on the same-store sales front. The metric stood at 5%, which was quite relieving for investors.

Tiffany’s shift of focus on silver-based products which have higher margins seemed to be working as its margins expanded considerably to 57.5%. Also, the jeweler benefited largely from the drop in prices of gold and diamonds. However, the most important point to note here is that the customers were unmoved by the company’s price increases and continued to purchase more.

A look at peers

Ralph Lauren (RL, Financial) has been finding it difficult to stir demand for its products. Though its recent quarter witnessed a 6% increase in revenue, on a constant currency basis, its bottom line fell short of estimates. This was mainly because of the company’s expansionary efforts. The retailer increased its spend on new stores and went for certain technology upgrades that influenced the margins as well as the earnings of the company. However, its efforts on both retail and wholesale segments led to increase in revenue from both.

The way forward

Tiffany is on the right track. Its move of increasing prices and cutting down costs will continue to benefit the jeweler. Also, its concentration on high margin fashion jewelry is the best thing to do, leading to widening of margins, which was once a major cause of concern.

The retailer has been performing pretty well in the emerging markets. Its revenue grew 20% in the Asia-Pacific region in the wake of great demand in such regions. In fact, Tiffany is not alone. Even Coach (COH, Financial) and Ralph Lauren have experienced higher demand in these regions, particularly in China. Hence, Tiffany plans to strengthen its position by opening more stores here in the coming quarters.

The specialty retailer has been introducing new collections such as freshwater pearls, Ziegfeld collection which is attracting new customers. Also, innovation is core to Tiffany’s business and it plans to focus its attention on providing new designs to its customers. Its new product developments in the coming months will help the company grow even further.

Marketing strategy is to be stressed upon such as online advertising, promotional efforts and the relaunch of the company’s website later in this year. This will make Tiffany’s new products to sell even faster.

Conclusion

Tiffany seems to have everything set for a rocking holiday season. New products, new and increased number of stores and growing consumer interests in high-end jewelry are expected to boost the jeweler’s sales. Moreover, winter is the peak season for retailers and they try to make the most of it. New products backed by great marketing strategies are going to work for this retailer even more. Given a bright and an upgraded outlook along with a convincing future, I think investors should consider this company for their portfolio.