Tiffany Brings Back the Bling

 | May 29, 2013 | 10:00 AM EDT
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Looks like bling is back in full force after Tiffany (TIF) blew away first quarter expectations Tuesday. In reality I don't believe it ever went away.

Sure, China is slowing and anti-gift giving on the mainland is all the rage but luxury is still alive and well. Just look at the string of recent reports from the likes of Richemont (owner of Cartier recently commented April +13%), Burberry, Ferragamo and Hermes. Discrete (less logo-oriented) luxury if anything, is gaining steam.

Tiffany is a different story however. After last year's string of earnings revisions, investors cheered when the company maintained its full-year projection Tuesday. And that comes after huge upside in the first quarter. Earnings per share grew in the high single digits vs. estimates (-15 to 20%) that is not being passed on to the rest of the year, for now. Most retail stocks would be punished for "implied guide downs" but TIF had a low bar and received a hall pass.

TIF's rally Tuesday was also about the top line. Two-year, same-store sales trends accelerated in every region in the first quarter. That was quite a departure from the fourth quarter results. Most notably, Japan comps increased 21% as consumers scrambled to buy product before mid-April planned price increases. But even after price increases were implemented, business did not slow down. Guess Abenomics is really having that feel-good effect.

Europe comps were also a surprise at +6% after a negative comp in the fourth quarter. Asia tourism is no doubt helping that comp as 25% of Europe's sales are now derived from travelers.

While the company expressed disappointment with the 3% comp in the Americas, the two-year trend here also represented an acceleration in the business. Sure, the comp did get a boost from price increases and a Blue Book VIP event in New York City. We do not know exactly how much of a boost that party had as the company did not break out flagship sales this quarter.

While the high end has been the driver of the TIF top line, this has come at a cost to gross margins (silver entry level margins are higher vs. statement jewelry). Based on the company's comments on the first quarter call, it sounds like aspirational higher margin product may get a new lease on life through marketing and innovation.  

It appears 2012 was the year of the guide down for TIF; 2013 is shaping up to be the year of the low bar. Investors say bling it on!

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