Tariff uncertainty takes a toll
The shares of Tiffany & Co. (TIF) and Signet Jewelers (SIG) have fallen ~14% and 12%, respectively, since May 10. Uncertainty related to the trade tariffs seems to have triggered the recent sell-offs in these companies. Investors remain skeptical about whether the US-China trade spat will hurt these jewelry retailers. The potential impact on their financials is still unclear.
Tiffany stock has erased most of its gains YTD (year-to-date), but it’s still up 11.8% as of May 30. Meanwhile, Signet stock is down 36.7% so far this year, reflecting continued challenges in its base business and pressure on its earnings.
Near-term challenges could limit upside
The recent decline in the stock prices of these jewelry retailers makes them attractive on the valuation front. However, short-term challenges could limit their upsides. Signet’s top line is expected to stay low as a decline in transactions is likely to hurt its comparable sales. Moreover, promotional spending to boost sales and higher credit costs are expected to hurt its earnings.
As for Tiffany, its top and the bottom lines are expected to stay weak in the first half of fiscal 2019. The strengthening of the US dollar is likely to hurt tourist spending. Meanwhile, lower demand from local customers remains a drag. Soft sales and Tiffany’s investments in growth measures are expected to drag its earnings down in the first half of fiscal 2019.