Let’s face it, the world of diamonds and fine jewelry is a mythical place filled with snobbish men wearing top hats and monocles and parading around in 16 piece suits. Just kidding. That’s how it may have been, but in the 2010’s, you have malls littered with pushy diamond salesman, hawking overpriced watches and marked up bridal sets to their heart’s content.
Then, take into account a plethora of online retailers that basically eliminate overhead, cutting costs and shipping direct to consumer certified and insured diamonds. You also now have AI companies such as RareCarat who will pull very detailed specifics and alert you to price changes, and give you the best deal based on your suggestion.
Tiffany’s defys trends
With all of these new age competitors, how would you expect Tiffany’s to compete? Well, they are second only to Apple in sales per square foot, clocking in a whopping $2,697 per sq. ft. for FY2017.
Impressed? So are we. Tiffany’s has built an ethos around its brand, a cult like following of patrons who value the little blue box above all else. Yes, there is incredible craftsmanship, but there are plenty of retailers who have excellent craftsmanship and warranties. Tiffany’s goes beyond that. Jewelry buying is turned into an experience, connecting you to hundreds of years of brand building, and one of the most recognizable brands in the world (right up there with Coca-Cola and Apple, definitely in the top 25 brands).
The company is still strong going into the 21st Century
If recent earnings reports are any indication, Tiffany’s is still on track for the long term growth. Highlights from the Q2 earnings report released 8/28/18:
- Comparable store sales rose 8%
- Revenue increase across the board: Americas +8%, Asia-Pacific +28%, Japan +11%, Europe +5%
- Gross margin rate improved 150 basis points on better wholesale price on diamonds, and better operational efficiency on fixed costs (basically increased sales on same overhead)
Invest in TIF for the long term
While you can debate jewelry as an investment, one sure thing is that $TIF is a solid investment, with the company returning value to investors through a consistent dividend, (1.7%, or about $2.20 per share). Payout ratio is on the higher side as well, just shy of 60% at 59.3%, meaning the company can hold on to even more cash if need be by reducing payout and accelerating growth.
Using a 5YR Discounted Cash Flow growth model, we calculate a modest 4% upside and a $134.49 price target, but if the stock or market experiences a correction and $TIF falls back to the ~$110 range, it would be HIGHLY recommended to initiate a position.