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Tiffany Pursues Diamond Sales of Fallen Competitors

02 september 2009

Tiffany & Co. sees an unprecedented opportunity to grab market share from jewelers that have succumbed to recession, and some analysts predict the stock will jump higher as the chain wins clients from fallen rivals, Bloomberg reported.
“With the number of bankruptcies and reorganizations in the industry, we are hopeful our sales can outpace the economic recovery,” Chairman and Chief Executive Officer Michael Kowalski said in an Aug. 28 telephone interview. “I have been here at Tiffany for 25 years, and in my own personal experience, we have not encountered an environment which we believe provides the long-term opportunity that this one does.”
Tiffany can capture sales in a $150 to $25,000 price range, with diamond jewelry a primary category, Kowalski said. The company is opening smaller stores, adding new jewelry designs and offering more products online. It is seeking to pick up better locations at lower rents as well as managers and sales staff, the 57-year-old CEO said.
The strategies may help boost Tiffany shares by as much as 20 percent within 12 to 18 months, analysts project. Brian Nagel at Oppenheimer & Co. raised his target share price to $45 from $38 after the company reported higher-than-estimated profit last week. Barclays Capital’s Robert Drbul increased his by $2 to $42, and Dorothy Lakner at Caris & Co. by $4 to that level. The analysts, all based in New York, rate the stock “outperform,” “overweight,” and “above-average,” respectively.
Tiffany declined $1.19 to $36.38 at 4:15 p.m. in New York Stock Exchange composite trading. The stock had risen 59 percent this year before today and gained 11 percent to $37.57 on Aug. 28 after Tiffany reported adjusted second-quarter earnings of 39 cents a share, beating analysts’ estimates by 6 cents. The New York-based company also raised its forecast for the year.
“Things are trending in the right direction,” said Daniela Nedialkova, an analyst with Atlantic Equities LLP in London, who predicts the stock will rise to $40. “It is becoming a better time for Tiffany to gain market share.”
With the U.S. jewelry industry consolidating, about $1.8 billion of the market may become available to Tiffany, Oppenheimer’s Nagel wrote in an Aug. 21 report. Grabbing 30 percent of that could add as much as $1.29 to running annual earnings per share, he wrote.
Tiffany had 5.5 percent of $28.3 billion of 2008 sales at U.S. stores that specialize in jewelry, and ranked third behind Signet Jewelers Ltd.’s Sterling Jewelers Inc., and Zale Corp., said Ken Gassman, president of the Jewelry Industry Research Institute. Tiffany, the world’s second-largest luxury jewelry seller, trails Cie Financiere Richemont AG, owner of Cartier and Van Cleef & Arpels, in global sales.
Given declines in luxury spending, Gassman says Wal-Mart Stores Inc. is in a better position to benefit than a specialty jeweler such as Tiffany. Walmart, based in Bentonville, Arkansas, is the world’s biggest retailer and already the largest seller of jewelry in the U.S.
This year through the end of June, 917 jewelry companies discontinued operations versus 523 at the same time a year ago, and 65 were in bankruptcy compared with 29, according to the Jewelers Board of Trade, a credit and collections agency in Warwick, Rhode Island, that tracks about 30,500 jewelry retailers and suppliers.
Finlay Enterprises Inc., a New York-based jewelry retailer founded in 1887, filed for bankruptcy on Aug. 5 and said it would hold an auction to sell its business and assets. High-end jeweler Fortunoff Holdings LLC filed for bankruptcy in February.
U.S. jewelry sales in the first six months of the year declined about 3 percent from the same period a year earlier, according to Gassman, who is based in Glen Allen, Virginia.
The smaller shops Tiffany is opening help it capture customers by allowing it to enter markets that couldn’t support a bigger store and to increase its presence in existing markets, said Mark Aaron, a company spokesman.
The stores, at about 2,500 square feet versus its average store size of 5,000 square feet, mainly focus on female shoppers buying jewelry for themselves and offer some engagement jewelry, Aaron said.
The chain opened the first one in Glendale, California, in September 2008, and plans as many as 70 by 2020, Aaron said in an Aug. 27 telephone interview. The second one opens in Seattle Sept. 4, he said.
The company also plans to expand its 76 regular-sized U.S. locations to 100 by 2016, according to Aaron. New products Tiffany introduced this year include key-shaped pendants with prices ranging from $150 to $15,000 and a collection of bezel- setting engagement rings.
The jeweler’s products win customers because they are “classic” and not “fashion,” David Schick, a Baltimore-based analyst with Stifel Nicolaus & Co., said in an Aug. 28 telephone interview.
“Tiffany does seem well-positioned to take market share,” said Schick, who notes the 172-year-old company’s longevity. “Tiffany has been though the Civil War, two World Wars and the Great Depression.”