Friday, 20 March 2015

Tiffany's - another company complaining about the US dollar

I last wrote about Tiffany's here and actually bought some stock after the earnings communication disappointment of early January. Aside from the US dollar translation (into my base currency Sterling) I have not made any money on the stock in the last couple of months.

So what to do after the publication of the company's Q4/FY 2014 numbers which did not look shabby at first glance...

...but looking more closely at the local versus reported currency numbers plus the outlook statement the issues start to mount.  On the actual Q4 numbers the company noted that:

'the US dollar is having an adverse effect on foreign tourists in New York…worsened in the latter part of 2014’

With c. 25% of overall US sales and 40% of the flagship New York store sales to tourists you can see their point.  

Mix this with other observations such as...

‘experienced weakness in Macau’, noted slowdown in HK since start of quarter

‘softness in spending of Japanese tourists when they travel’

...even positive trends in Europe due to the weaker euro (and hence positive tourism trends) and an observation that there was good sales/demand at most ex low end price points and ‘considerable strength in gold jewellery sales’ (in contrast to silver) was not enough to give the group overt confidence for the future. Indeed the outlook statement highlighted 'minimal growth in net earnings' and difficult comps in both the US and Japan.  There was also a pension expense to factor in. 

So what price Tiffany's?

Using the company's own guidance of 'minimal growth in net earnings per diluted share' the share trades on just over a x13 forward EV/ebit multiple and offers a c. 3.7% free cash flow yield (of which around half is paid out as a dividend) and with a solid balance sheet (net debt is around x1 ebitda).  

These are not terrible multiples but not hugely compelling if like me you have a starter position already.  Nevertheless I would certainly encourage zero position investors to consider the stock and my trading instinct is not just to hold on but to look to double my position in the US$75-80 range (the lower price equates to around a forward x12 EV/ebit multiple).  

Given my macro view remains that the dollar struggles to progress from here the FX overhang will abate over time and this is another reason to remain active/involved with the share.  

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