Will Hong Kong Protests Tarnish Tiffany & Co.’s Positive Financial Results and Jeopardize Asset Appreciation? (NYSE:TIF)

Despite only meeting earnings expectations in the third quarter of 2018, Tiffany & Co. managed to beat full-year earnings estimates on strong financial performances in the remaining periods last year and continued to deliver higher than expected earnings in the first two periods of 2019.

After gaining nearly 40% in the first four months of the year, the company’s share price reversed direction and relinquished all its gains by mid-August 2019. However, after delivering better-than-expected earnings in its most recent quarterly financial report, the Tiffany and Co.’s share price has been moving higher again.

In addition to showing signs of potential capital gains again, Tiffany & Co. continued to reward its shareholders with steadily rising dividend income distributions. After more than a decade of consecutive annual dividend boosts, the company still grew its total annual dividend amount at an average growth rate of more than 10% over the last three years.

However, investors should note that the unrest and protests in Hong Kong could have a significant impact on Tiffany & Co’s sales, as well as profitability in Asia. The Asia-Pacific region — excluding Japan — accounts for 28% of total sales and Honk Kong’s 10 stores contribute one-fifth of the region’s revenue on their own. Therefore, a downturn in Hong Kong could have a significant impact on the region. Subsequently, weakness in the Asia-Pacific region, which generates more than one quarter of total revenues, could spell trouble for the company’s overall financial health.

However, Tiffany & Co’s above-average dividend payouts and yield can still attract investors willing to collect the dividend income while waiting on the share price rebound. The share price experienced a significant spike in early 2018 to reach is all-time high of nearly $140. It is highly unlikely that Tiffany & Co’s share price will jump nearly half its current value to those levels any time soon. However, the share price has more than 13% room on the upside before it reaches the Wall Street analysts’ current average price target of $103.70, which is a much more realistic near-term goal.

Financial Results

On August 28, 2019, Tiffany & Co. announced mixed results for its second quarter, which ended July 31, 2019. Net sales of $1.05 billion for the second quarter were 3% lower than the $1.08 figure from the same period last year. Excluding the impact of foreign currency exchange, the net sales declined only 1% year-over-year. Net earnings of $136 million, or $1.12 per diluted share, were 6% lower than last year’s $145 million, or $1.17 per share. However, the current earnings per share (EPS) of $1.12 were 7.7% higher than the $1.04 EPS expected by analysts.

Dividends

The company’s current $0.58 quarterly dividend amount represents a 5.5% increase over the $0.55 dividend payout from the same period last year. This new dividend payout corresponds to a $2.32 annual distribution and a 2.5% forward dividend yield. Driven by the rising dividend distributions, as well as the recent share price pullback, the current yield is nearly 22% higher than the company’s own 2.1% five-year yield average.

In addition to exceeding its own yield average over the last five years, Tiffany & Co’s current yield also outperformed the 2.04% simple average yield of the overall Services sector by nearly 25%. Additionally, the current yield is also more than 30% above the 1.95% yield average of Tiffany’s peers in the Specialty Retail industry segment.

The company skipped its annual dividend boost only once in the past two decades. Since paying a flat $0.16 annual dividend in 2002, the company enhanced its annual payout amount more than 14-fold over the past 17 consecutive years. This advancement pace corresponds to an average annual growth rate of 17%. Furthermore, while growth rates tend to decline as the total annual payout amount rises, Tiffany still managed to maintain an average growth rate of nearly 10% over the past five years.

Share Price

The share price entered the trailing 12-month period on a steep downtrend that followed a 40% spike to an all-time high in mid-2018. After passing through its 52-week high of $129.21 on September 23, 2019, the share price gave back nearly 40% of its value on the way to its 52-week low of $74.21 on December 24, 2018.

Following a trend reversal at the end of 2018, the share price regained 30% of its losses by early May, but bounced off the $110 level and dropped back to just above $80 by mid-August 2019. However, since bouncing above the $80 support level in mid-August, the share price has gained more than 13% to close on September 10, 2019, at $91.28. While still 26% below its level from one year earlier, this closing price was 23% higher than the 52-week low from last September.

Tiffany & Co. (NYSE:TIF)

Headquartered in New York and founded in 1837, Tiffany & Co., designs, manufactures and retails jewelry products and accessories. The company operates through five geographically based segments. With a 44% share of global net sales, the Americas region is Tiffany’s largest. The Asia-Pacific region excludes Japan and generated 28% of net sales at the end of fiscal-year 2018. The Japan market is its own region with a 15% share of net sales. With an 11% share of net sales, the Europe market, which encompasses operations in 12 countries, is smaller than the Japan market. Lastly, the Other segment accounts for just 2% of the company’s net sales from stores operated under a licensing agreement in the United Arab Emirates. As of the end of second quarter on July 31, 2019, Tiffany & Co. operated 322 stores worldwide. More than a third of these store (124) were in the Americas region. Additionally, the company operated 90 stores in Asia-Pacific, 56 in Japan, 47 in Europe and five in the United Arab Emirates.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.