Tiffany's Is Executing On Long-Term Strategies

Tiffany & Co. (NYSE: TIF) reported a Q1 beat, driven by a lower tax rate, while issuing a cautious guidance for Q2 and FY16. Mizuho’s Betty Chen maintained a Buy rating on the company, while lowering the price target from $80 to $72.

“As compares become progressively easier in 2H, we note the company will begin to benefit from: 1) product repositioning; 2) marketing initiatives; and 3) favorable input costs to drive gross margin expansion in FY16 as moderating FX headwinds could present earnings upside going forward,” Chen mentioned.

Q1 Beat

Tiffany reported OpEPS of $0.69 for Q1, ahead of the estimate and the consensus, partially due to a tax settlement benefit.

Worldwide comps were in-line with the estimate, driven by FX pressure and weaker tourism spending.

Gross margin expanded 210 bps due to favorable input costs and select price hikes, while SG&A deleveraged by 470 bps and inventory declined.

Moderated Outlook

“Given sluggish tourism spending across the Americas, APAC, and Europe and global macro concerns, we believe guidance for 2Q/2H weakness was widely anticipated as management guided 2Q EPS to decline similar to 1Q and FY16,” Chen said.

The analyst expects Tiffany to continue to focus on new product initiatives, easing comps and more effective marketing, in order to return to positive same store sales growth by 2H.

Chen noted, “the company continues to demonstrate progress with gross margin expansion aided by lower input costs, selective price increases, and overall product mix.”