By Richard Robinson, Ph.D., Equities Analyst
Tiffany & Company (TIF) shares dropped nearly 4% on Friday.
Shares closed at $82.93, or $3.44 lower than the previous day.
The stock is now down more than 22.3% this year. That puts it just above Tiffany’s 52-week low of $82.75.
The sudden dip came on the heels of the company’s fourth-quarter earnings report. Tiffany reported that quarterly sales fell for the first time in five years.
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It turns out that tourists refuse to visit the company’s flagship store in Manhattan, which drives about 40% of Tiffany’s sales.
Why are they steering clear?
Tiffany claims that tourists aren’t coming to the Manhattan store because the U.S. dollar is so strong right now.
Of course, the dollar has become a key theme in each earnings report since the middle of 2014.
The Dark Side to the Dollar’s Strength
A stronger dollar transfers demand from the United States to other economies around the world.
Which means that U.S. companies relying heavily on foreign customers could face significant headwinds in 2015.
The prices of American products become more expensive relative to local currencies as the dollar continues to gain strength.
This is exactly what happened to Tiffany.
Now, while Tiffany achieved solid growth in net sales and net earnings for the full year, the fourth-quarter results were less impressive.
The company said Q4 revenue declined 1% to $1.3 billion, which is the lowest year-over-year revenue growth rate since 2012 – when the company’s revenue grew by 2%.
Worse still, the company’s revenue numbers are well below the Q3 estimates for this quarter, where analysts’ consensus was $1.36 billion.
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Net income for the quarter was $196.2 million, or $1.51 per diluted share.
But for TIF shareholders, the most concerning item to be gleaned from the company’s financial reports is management’s outlook for the rest of 2015.
Lower Guidance Doesn’t Bode Well
The company expects the strong dollar to continue wreaking havoc on the company’s finances, resulting in a low-single-digit percentage increase for the full year when reported in U.S. dollars.
TIF now expects corporate profits to fall 30% in the current quarter, while stabilizing in the following quarters, resulting in “minimal growth” for the full-year.
But the company’s outlook seems too optimistic – even for Wall Street.
In anticipation of a prolonged strong dollar, Wall Street lowered the company’s Q1 2015 estimates by 11.5%, while also lowering the fiscal year 2016 results by 9% to $4.47 per share.
With Tiffany & Company shares sitting near 52-week lows and the stock showing oversold in the weekly charts, what’s an investor to do?
That’s easy…
When a stock is trading at 57.9x trailing earnings – or nearly three times the average price-to-earnings ratio of companies in the S&P 500 – investors should certainly stay away until the company’s outlook improves.
Good investing,
Richard Robinson
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