Tiffany Also Slows Its Expansion in Russia

In February 2014 Tiffany opened its first store in Russia, placing it at the TSUM department store. At that time, at Olympic Games times that took place in Sochi, south of the country, few could foreshadow the political-economic disaster that would meet Russia in the following months and from The Luxonomist pages we have been describing. In addition, the fall in oil prices, meant additional pressure on the ruble, already weakened by the war situation in Ukraine and the sanctions imposed by the Western bloc.

According to the Russian newspaper «Izvestia», Tiffany ended 2014 with losses of about 750,000 euros, on sales of around EUR 10 million. Like so many other multinational companies of luxury, Tiffany sees the country with huge potential, when a little improvement of  economic conditions took place, will grow demand on luxury goods.

Michael Kowalsky, CEO of the US company said on NBC ruled: «The weakening of the ruble is problematic, but they are only short-term political considerations will continue to implement our plans, because we believe in the long run, this makes economic sense. Russia is a very important market for luxury where we have to be present. » However, so far they will not open the additional store coming in the strategic plans of the company. The company has not disclosed what specific expansion plans for Russia in 2016.

Financial strength and profit warnings.
Tiffany had at the end of the second quarter of 2015 with a total of 304 stores worldwide, with six new in the last quarter. Tiffany is unique in that income and earnings per square meter of their stores is clearly superior to its competitors. It also presents liquidity and leverage positions better than the industry average. An example is that the available cash of the company was 771 million USD, which has served, among other things to buy back shares worth 23 million USD and to invest in business expansion almost 100 million.

The company´s debt is proportionally less than the industry average, with 0.38 ratio (debt / equity ratio). The liquidity ratios (quick ratio) is 1.45, also better than the industry.

This financial strength, coupled with the fact that also gross and operating margins Tiffany are above average, has not prevented the company  undergone a «profit warning». The market estimated 2015 earnings per share of more than 4 USD and now that figure is far from achieved. In fact the last quarter’s earnings per share were $ 0.88. Our colleague Pilar García de la Granja analyzed this situation. The stock is now trading at 0.01 to 80.32 minimum of 52 days, showing a PER of 23.2 times in line with industry.

Breakfast at Tiffany’s now cheaper.
Indeed, due to oversupply, the price of this precious mineral has fallen by 7%, and according to De Beers this fall could top 9%. Lower sales have made the number of bankruptcies and mergers in jewelry industry , for example in North America, has increased significantly.

De Beers is the leading supplier of diamond for Tiffany, which also has important bilateral agreements with Alrosa, a Russian company that we had already analyzed a few months ago. Tiffany apart of retailing is also dedicated to diamond cutting and is today the second jewelry chain in the world after Chow Tai Fook, a Chinese company.

Disclosure:  The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.