Wednesday, November 24, 2010

Tiffany's - All that Glitters is the High End US Consumer, and Foreign Buyers

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One of our long held thesis is the bifurcation of American society.  [Dec 2007: Do the Bottom 80% of Americans Stand a Chance?]  This will become a larger and larger theme as the we go forward as globalization hollows out the U.S. middle class, creating more of a chasm between the top and the bottom.  Perhaps we need to start calling this the plebeian class of America.
  • The plebs were the general body of Roman citizens (as distinguished from slaves) in Ancient Rome, consisting of about 93-95% of the Ancient Roman population. They were distinct from the higher order of the patricians. 
  • A member of the plebs was known as a plebeian (Latin: plebeius). This term is used today to refer to one who is or appears to be of the middle or lower order

What's good for corporation (our patricians) is no longer very good for (domestic) labor as the global labor pool expands by a few tens of million each year.  Arbitrage the globe for lower labor costs, while retaining capital and profits in fewer and fewer hands i.e. capitalism made perfect.... we all win here.  All least in the textbook.  What that says for our (domestic) society long term is a different discussion (fascinating article in Time magazine on how the lower tranches of U.S. society no longer can really afford to wed), but for investment purposes it means some very simple things.  Focus on names that cater to the high end or low end (look at the charts of dollar stores the past few years as an example).  It's not just me developing entire investing themes around this, the investment banks are on the case as well - so to ignore or deny it is foolish.  [Sep 7, 2009:  Citigroup - America, a Modern Day Plutonomy]

While the disaster that was 2008 to mid 2009, put some hurt to the high end - we seem to be back to business as usual in the upper tranche of society as all the king's horses (and men) have made sure the largest campaign contributors continue in the gilded life.  Increasing wealth overseas - especially of the Asian kind - will also help those American retailers who have cache.  Tiffany's (TIF) is one such brand - with a chart I've been admiring for a few months but failed to pull the trigger on.



The company reported last night - and the recession is now an afterthought for this niche of society.  With the flagship store near the beating heart of the U.S. oligarchy, and increasing awareness overseas Tiffany's is in the perfect groove.

Via AP:
  • Strong sales of higher priced jewelry like engagement rings and diamonds in the U.S. and overseas helped Tiffany & Co.'s third-quarter net income rise 27 percent, another sign luxury spending is rebounding quicker than other areas.
  • The jewelry maker famous for its iconic turquoise box also on Wednesday forecast a strong holiday season and raised its yearly guidance well above expectations.
  • Reversing a trend seen during the recession, sales of items under $500, such as silver jewelry, declined, but most other product categories, including fine jewelry, designer jewelry and engagement rings, increased. (sales under $500 are for the plebs of society!)
  • Net income rose to $55.1 million, or 43 cents per share, from $43.3 million, or 34 cents per share. Excluding costs related to a pending move of headquarters staff, net income was 46 cents per share. That beat analyst expectations of 37 cents per share, according to a poll by Thomson Reuters.
  • Revenue rose 14 percent to $681.7 million. Analysts expected $652.8 million.
  • Revenue in the U.S., Canada, Mexico and Brazil, which accounts for about half of Tiffany's business, rose 9 percent. Revenue rose 24 percent in the Asia-Pacific region, 22 percent in Europe and 12 percent in Japan.
  • Revenue in stores open at least a year rose 7 percent. 
  • CEO Michael Kowalski said revenue was helped by new stores. The company has opened 6 so far this year. New products such as yellow diamonds and a leather goods collection also helped.
  • "We are now a few weeks into the all-important two-month holiday season and sales growth is exceeding our expectations, although the majority of the holiday season is certainly still ahead of us," he said.
  • Tiffany raised its full-year earnings outlook to $2.72 to $2.77 per share from $2.60 to $2.65. Analysts expect $2.64 per share.
  • Tiffany, which raised prices earlier this year, said it would raise prices again early next year to offset rising costs of diamonds and precious metal like gold, platinum and silver.    Tiffany has “hiked prices to counteract the rise in commodities with no apparent detriment to consumer demand,” Brian Sozzi, a New York-based analyst for Wall Street Strategies Inc., wrote in a note today.
Pricing power?  Priceless.


Via Bloomberg - some product line expansion to boot.

  • The jeweler, led by Chief Executive Officer Michael Kowalski, introduced its first handbag collection in 20 years in September to extend the Tiffany brand. Other new accessories include men’s briefcases, purses, wallets and business-card holders
  • The company operated 225 stores at the end of the third quarter, 10 more than last year, with six being added in the Asia-Pacific region.
Go East young man!

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