Don’t get fooled by Tiffany’s sparkle

The iconic luxury retailer is regaining some luster on Wall Street, but it's a value trap investors are better off avoiding.

By Jonathan Berr Mar 27, 2013 9:20AM
If there's a doghouse on Wall Street, Tiffany (TIF) would have surely been in it last year after cutting its earnings forecast three times. Everything seemed to go wrong for the New York City-based retailer at once, with sales in its core U.S. and European markets stagnating as commodity prices rose. 
Although it was hurt by the economic downturn, some of Tiffany's woes were self-inflicted. For instance, analysts have criticized the company for not updating its designs frequently enough. Tiffany has also been slow to expand into the watch business as it tries to resolve a legal dispute with former partner Swatch.

Wall Street, though, is taking a shine again to Tiffany after its most recent earnings, pushing the stock up more than 18% this year. And while the latest results were better than what analysts had expected, they weren’t great. Earnings rose 0.7% to $176.9 million, and revenue lifted 4% to $1.2 billion. Gains in China helped boost Tiffany’s Asia-Pacific revenue to $254 million, a 13% increase. North American sales rose 2% to $620 million.

Tiffany also expects stronger sales growth for the rest of the year as its China business rebounds and it offers better designs of lower-priced silver jewelry. But others aren't so sure, and U.S. consumer confidence unexpectedly fell in March because of the continued battles over the federal budget in Washington. 

Even investors who expect the economy to continue improving will find plenty not to like about Tiffany's stock. With a price-to-earnings multiple of 20.98, Tiffany's valuation is at a five-year high. The shares also trade at a premium to peers such as Coach  (COH), another luxury retailer that has been hurt by poor earnings.

Coach, though, also has a bigger upside than Tiffany. Shares of the maker of high-end accessories are forecast to hit $60.94 over the next 52 weeks, a gain of more than 23% from current levels. The price target on Tiffany is $67.08, below where it currently trades.

Though some pundits have speculated that Tiffany might make an attractive buyout target given its iconic brand, that’s not a good enough reason to buy the stock because theoretical deals often don't happen in the real world. Besides, Coach has more growth potential -- analysts expect its revenue to increase 7.6% in the current quarter.

The rewards for investors in Coach far outweigh the risks. A Coach purse may not sparkle like a Tiffany diamond, but as the economy rebounds many customers will find it as alluring.

Jonathan Berr is among the least fashionable people he knows. He doesn't own shares of the listed stocks. Follow him on Twitter@jdberr.

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7Comments
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Tiffany depends on the middle class to buy it's products. The middle class buys it's products to pretend to be in the rich class. However the super rich have squezzed the middle class into being poor class so their are not too many people wanting to buy Tiffany products.

 

Perhaps Tiffany should make things for the Walmart crowd now.

 

Anyway the BRICS are going to start up their own International Bank and the World Bank and the IMF are now history as is the US dollar.

 

So things are going to start falling apart very fast now folks. Expect chaos to rule by summer.

Mar 27, 2013 3:37PM
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hahahahaha, what a trap.  I know people who shop there and think it's fabulous.  STUPID ! 
Mar 27, 2013 3:45PM
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Tiffany's has consistently a great stock becasue it depends upon wealthier status buyers and it excludes the scum who can't afford anything.  Go Tiffany's.  Screw Coach!
Mar 28, 2013 10:16AM
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have many tiffany pieces but the quality has gotten so bad. So disapointed sending last purchase back we'll see how there customer service is. Its not about class its about quality.
Mar 27, 2013 12:00PM
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Welcome to Obamaville where only government employees can afford to shop at Tiffany's
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