Is the Dollar Really Why Tiffany Lowered Earnings Expectations?

Tiffany & Co. (NYSE: TIF) reported lower-than-expected sales results for the two-month holiday period ended December 31. The sales results were considered disappointing by executives due to headwinds from a strong U.S. dollar. As a result, the company is also lowering its guidance for the full year.

For the fiscal year ending on January 31, Tiffany is forecasting a net earnings range of $4.15 to $4.20 per diluted share. The previous forecast range was $4.20 to $4.30. This represents an increase of 11% to 13% from the previous year’s earnings of $3.73 per diluted share.

Thomson Reuters had recent consensus estimates of $4.32 in earnings per share and $4.32 billion in revenue.

Overall, worldwide net sales were reported as $1.02 billion, which was 1% lower than the previous year. According to the company, on a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, worldwide net sales increased 3% and comparable store sales were flat from the previous year.

The company reported its regional net sales highlights on a constant-exchange-rate basis:

  • Asia-Pacific total sales rose 10% and comparable store sales increased 6%.
  • Japan total sales fell 3% and comparable store sales declined 8%.
  • Europe total sales increased 9% and comparable store sales rose 4%.

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Despite the disappointing sales overall, Frederic Comenal, the President of Tiffany, said:

Tiffany has meaningful global opportunities to pursue over the long-term. For the coming year, however, we are planning cautiously as we anticipate significant headwinds from the stronger U.S. dollar against all of our key currencies that, as we experienced in the holiday period, negatively affects both the translation of results and sales to tourists in the U.S.

The company expects to report its fourth-quarter and full-year results on Friday, March 20.

Tiffany had a consensus analyst price target of $111.29, which implies an upside of 7.6% from Friday’s close. The highest analyst target price was $125 suggests upside of 20.8%. Shares of Tiffany were indicated down 9% Monday morning after the warning to $94.20, in a 52-week trading range of $80.38 to $110.60.

Investors have known that the strong U.S. dollar would pose a risk for some time now. It is not as if this was a new trend, nor a trend that is expected to rapidly reverse. When companies issue earnings warnings tied mostly or solely to currency moves, it makes you wonder why management did not take steps to properly hedge their currency exposure.

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