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Tags: Tiffany | upscale | jeweler | TIF

Tiffany: Shop This Jeweler’s Beaten-Down Shares

By    |   Wednesday, 13 June 2012 06:12 PM EDT

Tiffany & Co. (TIF) had a pretty strong run higher right through the credit crisis, only hitting a sell-off phase in earnest in the past few months. Now well below both 50-day and 200-day moving averages and paying a 2.37 percent yield, some analysts contend its time to shop the upscale jeweler’s beaten-down shares.

Tiffany & Co. sells jewelry and other items that it manufactures or has made by others to its specifications. The Tiffany & Co. brand is the single most important asset of Tiffany, its managers said in a recent filing. The strength of the brand goes beyond trademark rights and is derived from consumer perceptions of the brand, they said. Management monitors the strength of the brand through focus groups and survey research, Tiffany told investors.

“Management believes that consumers associate the brand with high-quality gemstone jewelry, particularly diamond jewelry; excellent customer service; an elegant store and online environment; upscale store locations; 'classic' product positioning; distinctive and high-quality packaging materials (most significantly, the Tiffany & Co. blue box); and sophisticated style and romance,” management explained. “Tiffany’s business plan includes expenses to maintain the strength of the brand.”

In 2011, sales in the Americas were 50 percent of consolidated worldwide net sales, while sales in the U.S. represented 90 percent of net sales in the Americas. Sales in Asia-Pacific represented 21 percent of consolidated worldwide net sales. Sales in Japan represented 17 percent of consolidated worldwide net sales.

Europe represented 12 percent of consolidated worldwide net sales, while sales in the United Kingdom represented approximately half of European net sales.

The “other” segment consists primarily of wholesale sales of merchandise to independent distributors for resale in certain emerging markets primarily in the Middle East and Russia and wholesale sales of diamonds. In addition, “other” also includes earnings received from licensing agreements with Luxottica Group for the distribution of branded eyewear and with The Swatch Group for branded watches.

“Management regularly evaluates potential markets for new Tiffany & Co. stores with a view to the demographics of the area to be served, consumer demand and the proximity of other luxury brands and existing Tiffany & Co. locations,” the company said.

“Management recognizes that oversaturation of any market could diminish the distinctive appeal of the brand, but believes that there are a significant number of locations remaining in the Americas, Asia-Pacific (outside Japan) and Europe that meet the requirements of a Tiffany & Co. location.”

Tiffany and Co. has a market cap of $7.04 billion in a sector, specialty retail, where the average company size is $5.90 billion. Its trailing 12-month P/E ratio is 16.24 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.37, compared to 1.30 for the sector.

Its projected earnings per share growth for the coming year is 15.05 percent, compared to a sector average of 15.61 percent.

Brand awareness

Analysts are mixed on Tiffany going forward, with buy and outperform calls in from Standard & Poor’s Equity Research and Oppenheimer & Company and underperform ratings from EVA Dimensions and Ativo Research.

“Despite a weak start to FY 13, we continue to view TIF as an attractive investment, as much based on management's acumen as on increasing brand awareness and market penetration in Continental Europe, the Asia-Pacific, and Latin America,” S&P analysts wrote in early June.

“These positive factors, coupled with what we consider to be a compelling valuation, support our strong buy recommendation.”

Tiffany & Co. next reports on Aug. 27.

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Wednesday, 13 June 2012 06:12 PM
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