Report
Jelena Sokolova
EUR 850.00 For Business Accounts Only

Morningstar | Tiffany's Strong Brand Should Deliver Sustainable Growth and Margin Improvement

Tiffany is one of a few global iconic jewellery brands. We believe it is relatively harder to establish an enduring brand moat in precious jewellery than in other luxury goods categories, given high raw material value and fewer opportunities to communicate the brand. Only a handful of precious jewellery brands have time-tested global recognition, and even fewer generate good capital returns.Tiffany’s brand equity is supported by iconic and long-lived collections, instantly recognisable blue boxes, and the “Tiffany blue” colour. Its vertical integration in terms of production and distribution is rare in the industry and supports the brand’s luxury perception. We don’t believe it leads to a substantial cost advantage, as precious stones account for the majority of cost of goods sold and diamond polishing/jewellery manufacturing can be done cheaply in low-labour-cost countries, whereas Tiffany employs over a third of its production/sourcing employees in the United States. Own distribution also leads to higher fixed costs, despite being accretive to gross margin.Over the long run, we think Tiffany can deliver mid-single-digit growth, benefiting from increasing high-net-worth and middle-class individuals globally, with upside potential from more frequent purchases as existing client welfare increases. Margins could increase over time through volume leverage to over 20% from 18% in 2018 and 18% historically. We believe Tiffany should be able to better leverage fixed selling, general, and administrative expenses as store expansion is moderated and rent inflation cools. We see profitability upside from higher growth through comparable sales and modest pricing power.
Underlying
Tiffany & Co.

Tiffany & Co. is a holding company that operates through its principal subsidiary, Tiffany and Company. Through its subsidiaries, the company designs and manufactures products and operates TIFFANY & CO. retail stores worldwide, and also sells its products through Internet, catalog, business-to-business and wholesale distribution. The company's principal product category is jewelry. The company provides a selection of TIFFANY & CO. brand jewelry at a range of prices. The company also sells watches, home and accessories products and fragrances. The company has four reportable segments: (i) Americas, (ii) Asia-Pacific, (iii) Japan and (iv) Europe.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Jelena Sokolova

Other Reports on these Companies
Other Reports from Morningstar

ResearchPool Subscriptions

Get the most out of your insights

Get in touch