EUR 850.00 For Business Accounts Only

Morningstar | Tiffany Reports Weak Holiday Sales, Trims Full-Year Outlook; Shares Fairly Valued

We are keeping our $92 fair value estimate for wide-moat Tiffany as the company reported weak holiday sales and adjusted its full-year outlook downward. Revenue growth is now expected at 6%-7% for fiscal 2018 (versus our expectations for 8.8% growth and previous guidance of high-single-digit growth rate). The preliminary revenue outlook for 2019 is also more cautious than our expectations at low-single-digit growth versus the 6% we forecast. We expect to tone down our near-term revenue and margin outlook, which we expect will result in a low-single-digit decrease in our fair value estimate. The company will provide additional insight into performance when it reports full-year results March 22. The shares are trading at a slight discount to our fair value estimate; we would recommend a wider margin of safety for investing.

Worldwide sales in November-December 2018 declined  1% and comparable sales were down 2% at current exchange rates; both were flat at constant exchange rates. The repatriation of Chinese buying, also noticed earlier this month by Richemont, continued with mainland China showing double-digit growth. However, growing local demand failed to compensate for a slowdown in Chinese overseas buying. Tiffany highlighted softening demand in local customer buying in the Americas and Europe, where market volatility, concerns about Brexit (the United Kingdom is Tiffany’s largest market in Europe), and social unrest in France may have played a role.

Regionally, Japan was the only market with positive like-for-like growth in the period (4% at constant currencies). Sales in Americas were flat (versus 7% growth in the first three quarters), comparable sales in Asia-Pacific declined 2% at constant exchange rates with lower Chinese buying in tourist destinations in Asia (versus 7% growth in the first three quarters), and sales in Europe grew 1% at constant currencies with a 1% decline in comparable-store sales (versus a 4% decline in the first nine months).