Tiffany Releases Holiday Sales 2019 – China consumers stay home, but continue spending on luxury

We are encouraged by TIF holiday sales release on a Friday 18 January 2019.

Shares are trading up to $89 per share which is 13% above our original $79 entry price a few weeks ago in December 2018. We are longer-term holders of this timeless brand and see value up to $125 per share, although may trim or entirely exit our position before this.

The holiday sales report covers Tiffany sales over November to December 2018 and is a significant event this year given the economic and government uncertainties in the US and Europe and feared slowdown in Chinese consumer spending.

Chinese consumers drive Tiffany sales growth: Tiffany sales comprise c.30% exposure to Chinese consumers , roughly split 50/50 domestic spending and tourist spending

Our key takeaway from the sales note is that TIF is doing well (at least better than the market expected) remains a fundamentally strong business and us capturing growth in the domestic Chinese market. This is important as Chinese consumer demand should be able to continue to mitigate volatility in the US and European markets, which may take 2-3 years to resolve (Trump, Brexit etc.). It is also essential to note anti-US sentiment has not impacted Chinese demand for Tiffany products, we suspect because of the positioning of the brand and products. Japan is also a key driver of growth for TIF, as its second-largest APAC market. Overall, we continue to monitor the Chinese consumer environment and remain positive on the fundamental value drivers for TIF.

Key highlights from Tiffany Holiday Sales below:

  • Global sales declined -1% (-2% like for like) vs Expectations for modest single-digit growth
  • Results were driven by declines in Americas (-1%), Europe (-4%), and Asia PAC (-3%) with growth in Japan (+4%), TIFs second largest market outside the US
  • The sales decline is mainly attributed to lower sales to foreign, primarily Chinese, tourists globally and to economic uncertainties in the US and Europe
  • Importantly, Chinese domestic sales grew double-digit %
  • As a comparative: jewellery sales increased 2%, while engagement and designer jewellery declined 3% and 8% respectively
  • Management reconfirmed FY sales growth guidance of 6-7% and guided to the lower end of prior EPS guidance

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