Tiffany & Co.

 

TIF Details
 
TIF to be Acquired by LVMH: Tiffany & Co. (NYSE: TIF) manufactures and markets jewelry, watches and luxury accessories across the major regions of the world. As per the latest update, LVMH Moët Hennessy Louis Vuitton SE (LVMH) and TIF have entered into a definitive agreement whereby LVMH will acquire TIF for $135 per share in cash, in a transaction with an equity value of approximately €14.7 billion or $16.2 billion. The acquisition of TIF has been approved by the Boards of Directors of both companies and the TIF Board of Directors recommends that its shareholders to approve the transaction with LVMH. The transaction is expected to close in the middle of 2020 and is subject to customary closing conditions, including approval from Tiffany’s shareholders and the receipt of regulatory approvals.

Q2FY19 Financial Highlights for the Period Ended 31 July 2019: TIF announced its second quarter results for FY19 wherein, the company reported revenue of $1,048.5 million as compared to $1,075.9 million in the previous corresponding period. Sales decreased across most of the region which can be attributed to the declined spending by foreign tourists and, to a lesser extent, local customers. Worldwide net sales declined 3% to $1.0 billion and comparable sales declined 4%. The company reported net earnings at $136.3 million as compared to $144.7 million in Q2FY18. Gross margin stood at 62.7% in the second quarter of FY19 as compared to 64% in the previous corresponding period, largely reflecting the changes in sales mix towards higher price point jewelry. Earnings from operations as a percentage of net sale stood a 17.6% in the second quarter as compared to 17.8% of the previous corresponding period.


Q2FY19 Financial Highlights (Source: Company Reports)

Segment Highlights: In the Americas, total net sales decreased 4% in the second quarter to $455 million, followed by a y-o-y decline of 1% in sales across Asia-Pacific region to $298 million due to the opening of new stores and increased wholesale sales during Q2FY19. In Japan, total net sales stood at $155 million, remained unchanged during the second quarter. The Europe business reported a 4% y-o-y decline in net sales to $116 million, primarily due to broad-based regional softness.

TIF opened three company-operated stores during first-half while closed two stores. As on 31 July 2019, the company operated 322 stores, including 124 in the Americas, 90 in Asia-Pacific, 56 in Japan, 47 in Europe, and 5 in the UAE.
The company repurchased approximately 639,000 shares of its Common Stock in the second quarter at a total cost of $60.0 million and an average cost of approximately $94 per share.

Outlook: As per the guidance, TIF expects worldwide net sales to grow by a low-single-digit percentage on y-o-y basis while net earnings per diluted share is expected to increase by a low-to-mid-single-digit percentage during the same period. The management expects net cash provided by operating activities to come in at least ~$750 million.

Valuation Methodologies:
Method 1: Price to Earnings Multiple Approach:

 Price to Earnings Multiple Valuation (Source: Thomson Reuters)

Method 2: Price to Cash Flow Multiple Approach:

Price to Cash Flow Multiple Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Stock Recommendation: The stock made a new 52-week high of $133.50 as on 25 November 2019 and closed at $132.25 with a market capitalization of ~$16.096 billion. The stock generated stellar returns of 35.21% and 60.387% in the last one month and three months, respectively. Considering the aforesaid facts, we have valued the stock using two relative valuation methods, i.e., Price to Earnings multiple and Price to Cash Flow multiple and have arrived at a target price of higher single-digit to lower double digit down-side in % terms. Hence, we suggest investors to book profit at the current market price of $133.25, up 6.17% on account of acquisition news as on 25 November 2019.

 
TIF Daily Technical Chart (Source: Company Reports)

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