Tiffany's (TIF) anticipated second half spending spree is seen as a positive long-term move by analysts, as the legacy brand gears up to execute its turnaround strategy.
In this morning's press release, the company explained that it is planning to spend added capital on technology, marketing, visual merchandising, digital and store revamp, jewelry inventories, and the renovation of its flagship Manhattan store moving forward, lowering its free cash flow guidance.
"I think it's a generally positive thing that they are adding investment in their brand," Morningstar, Inc analyst Jelena Sokolova told Real Money. "It's a good time to make investments while demand in China and the U.S. is high."
She explained that additions to working inventory in particular will help to address growing demand in those regions, which she noted has been trending higher over the past year.
The company reported that inventories have increased by a value of about $175 million in the past year.
While maintaining her belief that shares remain "pricey" on the earnings, she explained that the move to increase inventory is a positive one to keep up with competitors.
Sokolova also touched on the large effort to overhaul the company's flagship store on Fifth Avenue, which she found to be positive despite the cost and timeline associated with the product.
"Although this comes at a cost, we believe it should help enhance brand visibility," she wrote in a research note provided to Real Money alongside her interview. "We believe it should help enhance brand visibility."
She added that the company's sales should not be interrupted, as management indicated it will utilize an adjacent building during the construction process, which is slated for completion by 2021.
CEO Alessandro Bogliolo explained that the large-scale renovation is aimed at increasing sales productivity at the highly trafficked location.
"We are thinking boldly on this project that while representing the building, expecting the buildings historical significance will create an environment that we intend will be second to none," he explained. "The related objective is to significantly increase the store's sales productivity in the future."
To be sure, the number of investments that the company is making will not be without short term impact, as multiple analysts pointed to the negative implications they have for the third quarter.
"Operating margin is still expected to decline year over year on increased SG&A spending this year," RBC analyst Brian Tunick wrote in a note today. "Third quarter earnings per share is guided down year over year mainly on higher SG&A spending."
However, despite his short term concern, Tunick rated the stock sector perform with a price target of $126.
Despite the cash decline in the short term, there is a long-term confidence that Tiffany is on the right track.