The luxury market seems to have found a bottom — and investors are betting that Tiffany will be the next beneficiary.
Following more than a year of sluggish sales at the high end, luxury retailers are starting to gain traction. Compagnie Financiere Richemont, which owns the Cartier brand, on Thursday reported its most robust quarterly revenue gain in nearly three years.
The results followed a solid set of numbers from Louis Vuitton parent LVMH, whose sales also accelerated in the latest quarter. Shares of Tiffany were 2 percent higher in early trading Friday, adding to Thursday's nearly 4 percent jump.
The stock was last changing hands near $82.
"Following a rapid slowdown in the global luxury market that began in [the second half of 2015], demand trends appear to be stabilizing for both Tiffany and the luxury space in general," Wells Fargo analyst Ike Boruchow told investors.
Boruchow on Friday upgraded Tiffany's stock to market perform from underperform, noting the category overlap it has with jewelry conglomerate Richemont. Meanwhile, the blue-box label will face easier comparisons in 2017, and should see a boost from the stronger economy and higher stock markets.
Still, it won't be smooth sailing for Tiffany, whose New York flagship sits next door to Trump Tower. With the shop accounting for some 10 percent of its global revenue, the heavy police presence and congestion on Fifth Avenue are expected to weigh on Tiffany's results.
While reporting its third-quarter earnings, Tiffany's management team said it had seen an "adverse effect" on traffic at that store, though it maintained the company's full-year outlook.
Tiffany has also struggled to connect with millennial shoppers. And even as the luxury market shows signs of stabilization, the latest report from Bain and Altagamma shows that wealthy consumers prefer to spend their fortunes on travel and wine over jewelry and handbags.
The high-end jeweler typically reports holiday sales ahead of its fourth-quarter earnings release. For the holiday quarter, Wall Street expects Tiffany to report a 1.4 percent revenue increase, with sales ringing in at $1.23 billion. The same consensus estimate from Thomson Reuters predicts earnings per share will decline 1.4 percent, to $1.44 a share.