Tiffany Is Becoming a Global Growth Play

Tiffany Is Becoming a Global Growth Play

Tiffany delivered a blowout earnings report on Tuesday, mostly due to strong international growth during the last quarter. The stock is trading at a premium versus competitors like Signet and Zale ; however, if Tiffany continues capitalizing on its global growth opportunities, investors in this high-quality name should be well rewarded over time.

A jewel of a report
Tiffany reported sales growth of 7% to $911 million for the quarter ended in Oct. 31. Revenues excluding the effect of foreign exchange translation increased by a strong 11% during the period and same-store sales on a global basis were up by 7% versus the previous year.

Sales in the Americas increased by 4% to $417 million. On a constant exchange basis, sales in the region increased by 5% and same-store sales in the Americas were up by a moderate 1% during the quarter.

The Asia-Pacific region is clearly firing on all cylinders; sales grew 27% to $238 million during the quarter. Sales excluding foreign exchange fluctuations were up by 29% and comparable-store sales increased by a whopping 22% in the region.

Japan, on the other hand, saw declining total sales, with revenues falling 13% to $128 million. But that was mostly due to exchange-rate fluctuations; constant exchange rate sales rose by 9% and same-store sales in Japan grew by a healthy 5% during the quarter.

Europe was also strong, with sales growing 7% to $104 million. Excluding the impact of foreign exchange rate fluctuations, revenues in Europe increased 4% on the back of a 2% increase in comparable-store sales.

Due to a combination of growing sales, higher profit margins and a lower effective tax rate during the quarter, earnings per share increased by a whopping 50% to $0.73 per diluted share. This was comfortably above the average estimate by Wall Street analysts in the area of $0.58 per share.

Management also raised guidance, for the fiscal year ending Jan. 31, 2014: the company is now expecting earnings per share of between $3.65 and $3.75 versus a previous outlook of between $3.50 and $3.60 per share.

All in all, the numbers were nothing short of impressive, especially considering the strong growth rates achieved in Asia-Pacific and the big increase in earnings per share during the quarter.

One of a kind
Competitors Signet and Zale reported earnings on Tuesday, too; even if they did quite well in North America, they were no match for Tiffany's numbers in terms of international growth.

Signet delivered an increase of 7.7% in revenues for the quarter to $716.2 million on the back of a healthy same-store sales increase of 3.2% during the period. The U.S. division showed an increase of 9.8% due to same-store sales growth by the same amount. Sales in the U.K. were much softer, though; total revenues fell by 0.9% due to an equal decrease in same-store sales.

Zale operates mostly in North America. The company is restructuring its operations and it seems to be moving in the right direction, but it's still in the red. Comparable-store revenues grew 4.4% during the quarter versus the same period in the previous year. Margins improved during the quarter, but the company still delivered a net loss of $27.3 million.

Making sense of the numbers
Even if Signet and Zale delivered strong performance in North America, they don't have the same kind of global growth prospects that make Tiffany so attractive on a medium- and long-term basis, particularly in the much promising Asia-Pacific region.

Tiffany's brand differentiation is not only relevant when it comes to international recognition; it also generates superior profitability for the company and its shareholders. Tiffany has an operating margin of 18.6% of revenue versus 13.9% for Signet and a much lower 1.8% for Zale.

The stock is also more expensive, though: Tiffany trades at a forward P/E ratio of 21.4, while Signet is considerably cheaper with a forward P/E of 14.4 and Zale trades at a forward P/E around 20, as Wall Street analysts are forecasting the company to become profitable in the coming year.

This premium valuation is reflecting substantial growth expectations for the company, but it doesn't seem excessive considering that Tiffany is firing on all cylinders on the international front. If the company continues capitalizing on its international growth opportunities, Tiffany can easily grow into its valuation.

Bottom line
Tiffany delivered a remarkably strong earnings report for the last quarter, and international growth prospects are looking particularly promising for the company over the coming years. Even if the stock is priced at a premium versus the competition, Tiffany's superior profitability and unique growth opportunities could be worth the price.

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