Monday, March 23, 2020

Are Tiffany Earnings Bright Like A Diamond?

Tags

What’s happening: Tiffany & Co reported its fourth-quarter earnings ahead of expectations on Friday but warned of a considerable hit to its 2020 results due to the coronavirus outbreak

What happened: In November last year, the company had agreed to be acquired by LVMH for $16.2 billion. The French luxury group already has famed brands in its portfolio, including Louis Vuitton, Christian Dior and Bulgari. Since then, the downturn in Tiffany’s shares has taken the company’s market cap to much below the inked acquisition price

  • Tiffany reported its quarterly sales at $1.36 billion, meeting expectations and representing 2.8% growth versus the same quarter in the previous year.
  • The company’s earnings, excluding items, came in at $1.80 per share, better than the consensus estimate of $1.77 per share.
  • Same-store sales, excluding currency effects, rose 3% and topped expectations of 2% growth.
  • Tiffany’s same-store sales in the Americas climbed 3%, while dropping 8% in Japan and growing by 7% in the Asia-Pacific region.

Why it matters: Tiffany reported strong results on Friday. This was also the first quarterly sales growth in a year for the Asia Pacific region, before the spread of coronavirus halted global economic activity.

The New York-based luxury jeweller also announced plans to temporarily close various stores last week to contain the spread of COVID-19. Tiffany will shut its Fifth Avenue flagship store in New York and reduce working hours at other stores. Other retailers including Ralph Lauren, Macy’s and American Eagle Outfitters have made similar announcements related to store closures.

LVMH is reconsidering the agreement to acquire Tiffany. The French group controlled by business magnate Bernard Arnault had agreed to purchase the 182-year old company for $135 per share. Tiffany’s stock has tumbled 17% since the first coronavirus case was reported in the US, valuing the jeweller at around $13.43 billion, much lower than the agreed takeover price of $16.2 billion. LVMH is now contemplating buying shares in the open market.

Tiffany has not issued guidance for the current fiscal year, citing the pending completion of the LVMH acquisition.

What to watch: Investors will stay abreast of any official communication from LVMH regarding an open market purchase of Tiffany’s stock. Any such announcement could boost the share price. Investors are also keeping an eye on Tiffany’s steps to reduce the impact of COVID-19 on its business.

The Markets Today

     

European stocks will be in focus today, after a volatile week. Announcements of stimulus measures by various central banks around the world have causes wide market swings.

Context: European stocks closed higher on Friday after witnessing strong volatility in the week. The Bank of England announced a bond-buying program and an emergency rate cut on Wednesday, following similar announcements by the US Federal Reserve, European Central Bank and Bank of Japan.

Details: Europe continues to report an increase in coronavirus cases and has taken China’s place to become the epicentre of the outbreak. Italy’s death toll, at 5,400, has exceeded that of China. The European country has also reported more than 59,000 cases. The case count in Spain and Germany is around 28,000 and 24,000, respectively. In total, there are more than 336,000 confirmed cases of COVID-19 worldwide with over 14,600 deaths.

The pan-European Stoxx 600 index closed around 1.4% higher, after giving back earlier gains. Travel-related stock jumped 9% to lead the gainers, after facing strong declines in the recent weeks. Media stocks bucked the market trend to record a drop of around 1%. The German 30 rose 3.7% on Friday, while French 40 jumped 5%.

Airlines continue to be hit by a decline in demand and border closures. German company Lufthansa has grounded most of its flights. Shares of British retailer WH Smith climbed 22%, recovering from a string of losses in the previous sessions. Shares of French REITs Covivio and Klepierre posted gains of over 27% each.

What to watch: After the strong performance of the European markets in the previous session, investors will be hoping for the momentum to continue in today’s session. Investors also await the Consumer Confidence report from the region. Consumer Confidence in the Eurozone, which rose to -6.60 points in February, is expected to decline to a reading of -15 in March.

Other Markets: US markets closed lower on Friday, with the Dow, S&P 500 and Nasdaq 100 down by 4.34%, 4.55% and 3.79%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Turkey’s consumer confidence and tourist arrivals, Canada’s wholesale sales, Brazil’s federal tax revenues and net payrolls, Russia’s gross domestic product as well as the US Chicago Fed National Activity Index.