What’s behind the Stellar Growth in Tiffany’s Bottom Line?



Key catalysts

Tiffany (TIF) continued to impress with its bottom-line performance in the fiscal second quarter. Its EPS of $1.17 rose 27.2% YoY (year-over-year) and handily surpassed analysts’ expectation of $1.01. That marks the third consecutive quarter that its bottom line has grown at a strong double-digit rate.

Its EPS continued to benefit from robust sales growth, driven by higher unit volumes. A significant decline in its effective tax (down 12.8% YoY) further boosted Tiffany’s bottom-line growth. Share repurchases also cushioned its EPS.

Lower rough diamond acquisition costs and a decline in wholesale sales of diamonds supported Tiffany’s gross margin expansion. However, the planned increase in marketing adversely impacted its operating margins and, in turn, its EPS.

In comparison, analysts expect Signet Jewelers’ (SIG) fiscal second-quarter EPS to also benefit from the lower effective tax rate. However, they project a steep YoY decline in Signet’s second-quarter EPS, as operational issues and an adverse mix are likely to take a toll on its profitability.

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Management raised guidance again

Given Tiffany’s strong financial performance in the first half of fiscal 2018, management raised its 2018 EPS guidance again. It now expects fiscal 2018 EPS to be $4.65–$4.80, up from $4.50–$4.70. Earlier, during the fiscal first quarter conference call, Tiffany raised its EPS outlook to $4.50–$4.70 from $4.25–$4.45.

Management remains upbeat and expects the company to sustain its momentum in the second half of fiscal 2018. Higher sales, supply-chain efficiencies, a lower effective tax rate, and share repurchases are likely to support its earnings growth rate. However, increased marketing spending is anticipated to remain a drag.


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