Luxury Is Back

–from The Oxford INSIGHT
WHAT WE ARE WATCHING

“Tiffany & Co (NYSE:TIF) will report its quarterly operating results before the market opens on Wednesday, November 25.

Luxury is back. While they were the last to go when the recession hit, luxury brands often fell the hardest. And now luxury is leading retailers out of the recession as higher-end consumers are beginning to resurface after taking a hiatus since last fall.

According to a recent Bloomberg report, spending on luxury goods in the third quarter surged by 29% among high-income consumers and a recent MasterCard report showed luxury sales increased 3.4% in September, which would mark their first such gain since August 2008.

Tiffany’s second-quarter net earnings were $0.46 per share, down from $0.64 from the same period a year earlier, but well above analyst expectations of $0.33. Management also upped its fiscal 2009 earnings outlook from $1.50-$1.60 to $1.65-$1.75 and has already declared a regular quarterly dividend of $0.17 per share on its Common Stock paid on January 11, 2010 to stockholders of record on December 21, 2009.

The earnings upside was due to strong cost controls and sales that continued to plod along. Even so, Tiffany’s sales figures were pretty bleak. Collectively, sales dropped 14%, with same-store sales plummeting 16%. Its U.S. business was worse: Same-store sales were off 27%. But the international market was not so dismal. Sales in its Asia-Pacific region declined by only 1% and European sales were down only 4%.

And like our other Sin Stock winner, La-Z-Boy, Tiffany cut costs relentlessly this past year. Operating expenses were slashed 15% from the year-earlier quarter, although the cuts did not quite offset the sales decline.

Yet TIF continues to expand and go where the money is – with plans to open a fourth 2,750-square-foot store in Singapore and a second location at London’s Heathrow Airport. But these pale in comparison to the planned 10,000-square-foot store at CityCenter, under development in the heart of the Las Vegas Strip. The multi-billion-dollar development, a joint venture between MGM, Mirage and Dubai World, is the largest multi-use project under construction in the country.

Added to our Seven Deadly Sins Portfolio in February of this year, Tiffany has already seen a 110% gain since we have held it. Expect shares to shine even brighter if the earnings report comes in at, or beats, estimates.”