Tiffany & Co. Summary of Japan Exposure


(Source for data is 8-K and Press Release on 1-11-2011) 
  • 56 of 232 stores or 24% of Tiffany stores are in Japan
  • 51 of 232 stores or 22% of Tiffany stores are in Asia (ex Japan) 
  • Fiscal 4Q2011 Net sales are expected to be $888.5 million
    • Japan sales are expected to be $142.5 million or 16% of total sales
    • Asia (ex Japan) sales are expected to be $138.9 million or 15.6% of total sales

Michael J. Kowalski, chairman and chief executive officer, said, “… fiscal year ending January 31, 2011. We now expect net sales of almost $3.1 billion and net earnings from continuing operations (excluding nonrecurring items) of $2.83 - $2.88 per diluted share, versus a previous forecast made in November of $2.72 - $2.77.”

It will take months, if not a year for the Japan market to stabilize.  At the same time, Japan trades a substantial amount of goods with surrounding countries.  I firmly believe the quarter that is February – April of 2011(fiscal 1Q2012) will be poor, as well as multiple following quarters, since this disaster took place in the middle of March.  Therefore, I will assume that all Tiffany Japan purchases have come to an abrupt stop, reducing most sales in Japan for the remainder of the quarter.

The company will report earnings the morning of March 21, 2011.  I would suspect a negative impact on not only Japan, but most of Asia because the trading of goods will impact the rest of Asia.  I also believe that full year guidance for fiscal 2012 will be taken down to reflect the Japan disaster.  

Tiffany is trading at 19.6X fiscal 2011 earnings based on analyst consensus estimates of $2.87/share with a growth rate of 14% based on fiscal 2012 analyst consensus estimated earnings of $3.27/share.  This means the stock is overvalued before analysts lower expectations.  I see FY2012 guidance being reduced to $3.09/share if you back out all Japan earnings for the remainder of 1Q2012 (.55 per share X (-16%/2) = .044) and all Japan 2Q2012 estimated earnings (.64 per share X (-16%) = -.10).  I also reduced the Asia earnings for the next two quarters by 25%, which reduces EPS by at least another .04.  This is a total reduction of earnings of .18/share for the fiscal 2012 guidance.  This changes the growth rate from 14% to 7.6%.  If the loss in growth is fully valued, and the PEG rate (1.4) stays the same, the stock would trade at (1.4*7.6=10.64) a P/E of no more than 11.  That would mean the stock could trade at $34/share.

The stock price hit a 52 week high in December 2010 of $65.76/share.  The stock closed the trading day at $57.68 on March 14, 2011.  Remember that the market is in a correction after being on a tear from September 2010 to February 2011.  I still think there is a lot of room on the downside.  

If you look at a Tiffany stock chart from a technical level, if the stock trades below $55 (2007 July & October double top support), the next stop is as low as $37.50 (near the lows of July 2010).





 

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