On Monday, Cramer looked at high-end retailers Coach and Tiffany. Both luxury retailers are discretionary plays on conspicuous consumption, but Coach is flirting with its 52-week high while Tiffany is 19 points off its high and just $11 from its low.
So what’s going on here? Shouldn’t these stocks trade in lockstep or close to it? After all, they share the same customer base, selling expensive objects that nobody really needs.
Well, Cramer told viewers these two companies aren’t nearly as similar as one might think.
Last month, Tiffany lowered its 2011 fiscal year earnings guidance, in part, because business was lousy over the holidays. On the other hand, Coach reported strong earnings results that beat estimates and also provided positive commentary about its future prospects. In turn, Coach’s stock has run up 18 percent year-to-date while Tiffany’s fell 2 percent for 2012.
The problem for Tiffany is that it has a much narrower customer base than Coach, Cramer said. It’s much more levered to Wall Street bonuses, but Coach has a far more diverse group of customers. About half of the handbags Coach sells are below $300, but Tiffany doesn’t have much that sells under $300. Coach also dominates in its category, commanding 29 percent of the premium handbag market, but Tiffany doesn’t come that close in the jewelry arena.
Another problem for Tiffany is that it gets 12 percent of its sales from Europe, Cramer said. Coach has virtually no sales in Europe.
Also, Tiffany’s margins are getting pounded by high prices of gold, silver and diamonds. When Tiffany’s costs go up, they can’t pass those costs onto the consumer because they will lose even more traffic. Tiffany doesn’t discount either, so its gross margins – what they make after the cost of sales – is declining. Meanwhile, Coach has industry-leading margins and continues to climb.
To Cramer: it’s important investors are able to understand what makes some companies winners while other companies in the same sector struggle. Right now, he thinks Coach is a winner while Tiffany continues to struggle.
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