Lehman Brothers' retail hardlines analyst Alan Rifkin was convinced, and the following day wrote a positive report on what he called an "upbeat meeting. We continue to believe Tiffany possesses one of the strongest brand identities in all of retailing," Rifkin wrote. To capitalize on the brand, Tiffany has increased its advertising investment from 5% of revenue to 6% of revenue.
Renovation of the Bond Street flagship store in London will reach completion this summer, followed this fall by completion of the $110-renovation underway at the company's Manhattan flagship unit. The latter includes the addition of a selling floor, which expands overall selling space in that location by about 25%.
Although the Manhattan redo has been going on since 2000, Aaron says it is not having any measurable impact on business, noting this store is "still a destination point." The Manhattan store continues to generate sales of approximately $5,000 per sf. Rifkin acknowledges that the final, first-floor renovation may cause some customer inconvenience, but believes this and the London remodel will have long-term benefits.
The Bond Street store "is a key driver of the company's European business," which represents 6% of total company sales, Rifkin writes. The three Tiffany stores in London account for more than half of that 6%.
This month Tiffany unveiled plans for a 7,600-sf additional New York location at 37 Wall Street. Given its distance from the flagship, Aaron does not anticipate meaningful cannibalization and calls the new location an underserved market. Tiffany has signed a 20-year lease for the Wall Street property, and the unit will open in fall 2007.
Meanwhile, although overall Tiffany profits plunged 35% in this year's most recent quarter, comp-store sales in Japan increased 12% for the quarter. Aaron sees additional growth opportunities there and in China and possibly India. According to Aaron, the Chinese customer has shown increased interest in Tiffany merchandise.
Architect and designer Frank Gehry has become a brand within the Tiffany brand with the introduction of six lines encompassing about 200 different products. Most are in silver, which allows for lower price points and higher margins. Aaron says initial response is favorable. The line will roll out to all US locations later this summer.
Although Tiffany's rough diamond business is lower margin than other categories, it continues to grow, and Rifkin believes plans to leverage "innovative diamond sourcing" and increased in-house manufacturing will produce improved operating margins in the long term. He also notes that, "while the company has been successful in passing on higher costs to consumers without compromising demand, (it) is very careful about increasing prices on merchandise."
Following his meeting with Aaron, Rifkin reiterated a Lehman Brothers' target of $40 a share for the locally based jewelry company. This parallel's Tiffany's own reiteration of its fiscal 2007 forecast, delivered after the disappointing March quarterly report.
By the close of the NYSE on Friday, June 23, TIF shares gained more than a point, lifting from the 52-week low of $31.65 a share the day before to $32.74 a share on an otherwise down day for the exchange. This is still $11 a share below Tiffany's 52-week high of $43.80 a share, which occurred on Nov. 28, 2005.
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