Tiffany still sparkles

Rewind just a couple of years and shoppers – not to mention investors – were rapidly losing interest in Tiffany as it failed to keep up with modern concepts around marriage and romance. But an overhaul of its marketing strategy has put the group on the road to recovery. Since putting women firmly at the centre of its brand messaging, specifically working women with disposable income, sales have turned up, as have earnings. By the end of its second quarter, Tiffany had beaten Wall Street’s 101¢ (79.2p) earnings per share (EPS) estimate with a reported figure of 117¢.

However, the third quarter to 31 October caused pause for thought. An EPS figure of 77¢ was just short of Wall Street’s 78¢ estimate, while a like-for-like store sales improvement of 3 per cent missed analysts’ expectations for 5.6 per cent. But, encouragingly, the group is still deriving a great deal of growth from China, and third-quarter gross margins improved from 61.5 per cent to 62.2 per cent, reflecting favourable input costs and sales mix. The gross margin improvement could have been better were it not for increased sales and administrative spending ahead of the all-important festive trading period. On that note, year-to-date EPS is still up 25 per cent to 308¢, with much of the peak trading season still left to play for. While Tiffany doesn’t participate in promotional events such as Black Friday, we still wouldn’t expect to see a significant sales ramp-up until much closer to Christmas. And to that end, it’s encouraging that management has stuck by full-year guidance for EPS of between 465¢ and 480¢ this year.

From a strategic perspective, the company is still working around three principles: marketing, product and staff training. The new chief executive, Alessandro Bogliolo – appointed in October 2017 - is making his mark, particularly when it comes to improving in-store customer service and launching new product lines such as the Paper Flowers collection. Other initiatives such as the Blue Box Café have proved tremendously successful – customers can quite literally have breakfast at Tiffany’s – while a new “inclusive” ‘Believe in Love’ engagement campaign has resonated well with millennial consumers.

Despite the ups and downs of recent years, the power of the Tiffany brand has shone through, with the company maintaining an upper-teens operating margin and return on capital employed (ROCE) over the past five years. The group has continued to repurchase shares and spent $71m on buybacks during the third quarter, which took the total for the year to $377m. That still leaves plenty of room for further buybacks as part of a pre-approved $1bn programme, which has authorisation up until 2022.