Tiffany & Co.announced disappointing results last week. Fourth quarter and full-year 2014 performance were mixed, but a sour 2015 outlook has investors more concerned. During the earnings call, the management team reiterated that it still believes long-term results will sparkle. Here are five nuggets of information investors should know.
Macroeconomic factors are putting Tiffany at a disadvantageTiffany has much more international exposure than its largest competitor,Signet Jewelers , which operates in the U.S., Canada, and U.K. At the moment, the strengthening dollar and softness in markets like Japan are largely to blame for the 1% year-over-year sales dip Tiffany suffered during the quarter. According to Mark Aaron, Vice President of Investor Relations:
Management went on to explain that full-year 2014 results were solid with earnings up 13% and sales rising 5%. Yet recent performance has trailed competitors like Signet, which enjoyed strong holiday sales. Unfortunately for investors, the news might get worse before it gets better.
Will the U.S. dollar kill 2015 results?
CFO Ralph Nicoletti dropped that bombshell for the current quarter, but that 30% drop is not as scary as it seems. Management chalks up its holiday weakness and poor outlook to currency woes -- Tiffany currently earns half its revenues overseas, and the currency translation is more to blame for the poor outlook than any other factor.
When you take into account the fact that sales in Japan were also very strong during the first quarter of 2014, making for a difficult year-over-year comparison, you realize this quarter will be artificially weak. That does not mean the entire business is in trouble.
Dollar woes hit homeThe other significant problem with a strong dollar: decreased tourist spending. International customers are thinking twice before opening their wallets, which is impacting sales at home. Aaron had this to say:
Bracelet from Tiffany T collection. Image courtesy of Tiffany & Co.
Tiffany is reinvesting in the customerDespite these obstacles, Tiffany is moving ahead with its growth plans. Its strategy is to launch new design collections, such as the modern and well-received Tiffany T collection for 2014, invest in its brand image, and enhance the in-store experience for shoppers. According to President Frederic Cumenal:
The sky is not fallingThe main takeaway from the call was that the sky is not falling for the company. Gross margin actually improved during the quarter, and management expects it to expand further throughout 2015. Despite its dire first quarter predictions, management expects sales to grow in the low single-digits for the full year. Sales growth should be even better on a currency neutral basis. Management also plans to open more stores this year, specifically in the Asia-Pacific region which earns the highest rate of sales per square foot ($3,100). Per Aaron:
Tiffany can make these substantial investments, even amid a soft quarter, because its balance sheet is in excellent condition. Long-term debt in 2014 was virtually unchanged from $1.1 billion, or about 39% of stockholder equity. Management is beating its goal of earning a minimum 15% return on equity and expects that to continue for company projects in 2015. In short, it is good to see the company reinvesting in growth, and it gives more weight to the idea that these issues will be short-lived.
The currency woes are temporary, and any weakness in the stock could signal a long-term buying opportunity for patient investors.
The article 5 Things Tiffany & Co. Management Wants You to Know originally appeared on Fool.com.
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