Tiffany's (TIF) Omnichannel Endeavors to Propel Top Line

Tiffany & Co.’s TIF omni-channel platform, store expansion plans and tapping of new markets are likely to help propel the company’s top-line. The company holds a significant position in the world jewelry market due to its distinctive brand appeal. The company is steadily introducing new jewelry designs, watch collection and fragrance, and additional jewelry SKUs.

Industry experts believe that the luxury goods market is likely to remain healthy, courtesy of steady economic growth, buoyant consumer confidence and rising disposable income. These are likely to fuel top-line growth in fiscal 2018. The Zacks Consensus Estimate of revenues for the third quarter and fiscal 2018 is pegged at $1.05 billion and $4.58 billion, reflecting an increase of roughly 8% and 10%, respectively.

This designer, manufacturer and retailer of jewelry and other items has displayed an impressive run in the bourses. A glimpse of Tiffany’s share price movement reveals that it has increased roughly 24% so far in the year comfortably outpacing the industry’s growth of 20%.

Initiatives on Track

Tiffany remains focused on evolving its brand, enhancing omni-channel experience, solidifying position in core markets, increasing operating model efficiency and enriching overall organization. The company remains committed to elevating in-store experience and replenishing product portfolio.

Focus on renewing product portfolio is evident from the launch of PAPER FLOWERS, which comprises solid collection in diamonds and platinum. The company is also looking at other revenue generating avenues, and this includes expansion of its watch business. The company also intends to expand distribution network by adding stores in both new and existing markets.

The company introduced “build-your-own program” on its website under which customers are allowed to personalize their own charm bracelets. Further, Tiffany is allowing customers to personalize their ring.

The company also renewed its licensing agreement with Luxottica Group — slated to expire on Dec 31, 2027 — for the development, production and global distribution of sunglasses and prescription frames under its brand. In a bid to expand its digital footprint in China, Tiffany will launch a virtual pop-up store on Tmall’s Luxury Pavilion.

Certainly, Tiffany remains focused on delivering sustainable improvements in comps and earnings. This is well reflected from its fiscal 2018 guidance.

Management anticipates fiscal 2018 net sales to increase by a high-single-digit percentage on a reported and constant-exchange-rate basis. Comps for the fiscal year are expected to rise mid to high-single digit. Tiffany envisions earnings in the range of $4.65-$4.80 per share.

Margins May Remain Under Pressure

Management expects SG&A expenses for fiscal 2018 to rise at a rate higher than sales owing to increased spending in technology, marketing communications, visual merchandising, digital and store presentations. This may strain margins to an extent. As a result, operating margin is expected to decline from the prior year on account of SG&A expense growth.

Tiffany had earlier warned that third-quarter earnings per share is likely to decline year over year. Moreover, the decision to transform New York City flagship store is likely to hurt fiscal 2018 earnings by approximately 7 cents a share on account of accelerated depreciation charges associated to the existing outlet and preliminary development costs.

Given the pros and cons embedded Tiffany carries a Zacks Rank #3 (Stock).

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