Our first piece on Tiffany hit the pixels on May 26, 2011. We pointed out that Tiffany had a history of underestimating the macroeconomy's impact on its earnings. In 2008, the company was blindsided by what the financial crisis would do to its earnings. We feared history might repeat itself.
We returned to the Tiffany story on June 1 when Deutche Bank analysts managed to downgrade the company to "hold" while producing a fantastically bullish note about the company's prospects. The bullish case for Tiffany rested on it being a strong play in Asia, the dollar weakening as Europe resolved its crisis, U.S. consumers strengthening, and a lack of many other pure-play luxury retail stocks. We responded by pointing out that Japan's disaster would likely have longer-lasting effects, Europe's debt crisis would weaken its currency, U.S. consumer skittishness would return and investors would flee luxury.
On July 6, we responded to a very bullish piece in Barron's on Tiffany. As we wrote:
One gets the feeling that this is a case of the micro-analysts not really having a handle on the macro-picture of the global economy. That "key risks" line is almost a throwaway.
I find it useful to think of Tiffany as a leveraged play on the global economy, which is increasingly skewed to rewarding the well-off. If the economy does well, and the rich keep getting richer, Tiffany does very well. But when the economy gets bad enough that the wealthier segments of the population feel the pinch, it's already too late to shut the barn door.
In August we returned to the theme of 2008 playing itself out again with a very weak fourth quarter:
Tiffany’s earnings are due out at the end of the month. I wouldn’t be too surprised if sales held up during the summer. But Tiffany does a huge part of its business around the holiday season.
If you are worried about the economy weakening in the next few months, it might be wise to worry about whether Tiffany can meet the earnings expectations that have sent its price soaring for so much of this year.
The bullishness over Tiffany now seems safely put to rest. The stock closed Wednesday below $60 a share And so, with that, we conclude our coverage of the company.
Until, of course, we next sense irrational optimism is again being packaged in a little blue box.
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