Shine On You Crazy Diamond

Consumer spending analysts already have a new name for the softer-than-expected Thanksgiving Day weekend holiday shopping sales.

They’re calling it “Gray Friday”, after those holiday spending figures dipped 3.9 percent compared to 2012, according to the National Retail Federation (NRF).

(For the record, the NRF still expects overall holiday spending to increase by the same number—3.9 percent—through December 25.)

One major high-end US retailer isn’t worried one way or another about the Christmas  and consumer numbers, and it’s a stock that investors should take a shine to, as well.

I’m talking Tiffany (NYSE: TIF), and it’s rolling into the holiday shopping season, and into 2014, with the wind at its back, after some stellar third-quarter earnings numbers.

In a nutshell, here’s how Tiffany fared in Q3, with good reason:

•    Tiffany’s profit margin popped by $95 million for the quarter, on earnings per share (EPS) of $0.73. The profit figures are 50 percent higher than in Q3, 2012.

•    Overall revenues clocked in at $911.5 million, ahead of Wall Street’s estimate of $888.4 million, on EPS of $0.58.

•    For fiscal 2013, Tiffany also hiked its outlook, estimating EPS of $3.65 to $3.75, or $0.15 ahead of its previous outlook.

•    Tiffany saw a three percent rise in global store sales, with higher growth along the Pacific Rim, which saw overall regional sales rise by 27 percent for the quarter.

•    Management is carrying its weight amid Tiffany’s Q3 success story. While net income rose by 49.7 percent, stronger sales weren’t the whole story. Tiffany lowered its cost-of-goods sold numbers by two percent—from 45.6 percent to 43 percent.

Can Tiffany keep it up ! going forward?

In the short term, definitely. Affluent consumers are spending again, and the holiday shopping season should further brighten Tiffany’s bottom line, as shoppers load up on gaudy baubles for their loved ones to open on Christmas morning.

But I like Tiffany for the long haul, as well.

Yes, the high-end jeweler’s stock is trading at a 52-week high this week, at $88 per share. And the one-year consensus target price from analysts is indeed $88 per share.

Yet there are other positive, long-term factors in play.

Some analysts, like Zacks Investment Research, point to a pair of recent hires as a healthy sign the good times should continue. The firm hired Anthony Ledru to run Tiffany’s recently dormant North America retail division, and Francesca Amfitheatrof, a seasoned silver expert, to officially replace the departed John Loring as the jeweler’s lead design director.

Those hires represent a healthy sign of stability for Tiffany, which leads to a second factor that supports a rise in share price for the 176-year-old company.

The Tiffany brand is literally worth its weight in gold, a belief shared by Michael J. Kowalski, chief executive officer at the company.

“Worldwide sales growth in the quarter demonstrated the growing power of the Tiffany brand and the benefits of our expanding global presence,” said Kowalski after the Q3 numbers were released. “Operating earnings rose faster than sales, reflecting favorable product cost trends and ongoing well-controlled expenses. We’re experiencing excellent customer response to our expanded fashion jewelry designs, as well as continued growth in our fine and statement jewelry, with particular strength in our yellow diamond collection.”

The brand story is a good one for Tiffany to tout. The global economy seems to be emerging from its five-year slumber (especially in the Far East, where high-end consumers are spending in greater numbers).
Tha! t said, jewelry consumers still want a “sure thing”, and you can’t find more of a sure thing than Tiffany’s, whose elegant logo and packaging alone tend to thrill the recipient, even before he (or usually) she opens the box and sees what lies inside.

That’s a powerful image for shoppers, and it should be a powerful image for investors, too.

I see Tiffany growing another 10 percent over the next two months, as the good news continues to mount from the holiday shopping season. (Yes, high-end consumers really do purchase Tiffany Mistletoe Brooch’s for $53,000, and in bigger numbers than you might think.)

But Tiffany should continue to glitter in 2014, as a stronger management team, lower-costs-per-sale, and a rebounding global economy send more shoppers into Tiffany stores and onto the Tiffany.com web site.

No doubt, those high end consumers are looking to “wow” a loved one with one of the retail sector’s most cachet-laden brands.

But that “wow” factor can work for investors, too, so expect TIF to keep on rising in 2014, and look for the world’s most luxurious retail brand to easily crack the $100 per-share mark next year.

A tip: Tiffany plans on releasing its 2013 November/December sales numbers on January 10, 2013. Buy in before that date, and at least capitalize on what should be a banner holiday sales season on TIF.

Brian O’Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.