Tiffany & Co has been one of our favourite stocks to pick on ever since we discovered last October that the company had overly optimistic projections of consumer spending during the economic downturn. Making matter worse, many investors thought that the the world’s second- largest luxury-jewelry retailer would be immune to a recession, thinking its customers might be recession proof. Analysts too seemed to be consistently too sanguine, lowering earnings estimates just a bit.
But now Tiffany seems finally to have caught on to the scale of economic devastation of the US consumer. It is projecting earnings of $1.50 to $1.60 a share for this year, and projecting a revenue decline of 11 per cent. Analysts had estimated a profit of $1.70. That would represent a huge shift in Tiffany’s economic expectations, which last year began by predicting it would early $2.92 per share.
We’re not sure the decline for Tiffany is over. Sales will continue to decline in the US if the recession grows worse. And sales in Asia and Europe, which have held up better than US sales, may be in for a heavy beating as the global economic situation deteriorates. Look closely at Europe for a sharp decline.
But the good news is that Tiffany is no longer flying blind to the economic conditions, analysts have caught up with the devastation and investors, hopefully, aren’t being misled by rosy projections. That kind of realism could arrest the decline in Tiffany’s shares, which will be a welcome respite to shareholders who have seen a 50% decline in the past year.