Tiffany & Co. analysis - Essay Example

? Tiffany & Co. Analysis Executive Summary This paper is mainly about Tiffany & Co analysis. It sets the background of this company through a briefly the history, its products, pioneers, location and distribution globally, and customer relation. It analyzes the company’s position through performing a SWOT analysis to determine the various parameters influencing the company. The company has profound strength in its strong local existence, positive brand image, well known for its silvery jewelry and strong direct selling strategy. Tiffany has some weakness as a result of declining cash flows and limited product range. Contrary to the weakness, the company prides in a number of opportunities such as Singapore as a luxury retail hub for Asian market and new business venture- Corporation with other companies to expand its market dominance. For the company to maintain its positive growth, it has to address the following threats; Proliferation of imitation for its items and Economic slowdown This analysis also expands its portfolio through examining the quantitative variables that influences its performance, thus, scrutinizing the quantifiable variables of the company like company worth and predictable sales. The method involves analyzing profit and loss accounts, arithmetical state of the financial system, sales and earning histories. The variables discussed in this section are; Financial Ratio Analysis, Industry Specific Metrics and EV/Revenue Valuation. Under financial analysis we study the company’s Liquidity, Asset, and debt Management and Profitability status. For specific company metrics; Sales per Retail Square Foot, Sales per Employee and Capital Intensity are as well discussed. The analysis winds with an EV/Revenue Valuation. Table of Contents Executive Summary 2 Table of Contents 3 List of Tables 4 Tiffany & Co. Analysis 5 1: Introduction 5 2: Qualitative Analysis 6 3: Quantitative Analysis 10 4: Recommendation 16 Work Cited 17 List of Tables Table 1: Table indicating Tiffany & Co Liquidity Status 11 Table 2: Table Showing Tiffany & Co Company Asset Management Trend 11 Table 3: Table Showing Tiffany & Co Debt Management Trend 12 Table 4: Table Showing Tiffany & Co Profitability Trend 13 Table 5: Table Showing Tiffany & Co Space Utilization 13 Table 6: Table Showing Tiffany & Co Employees Output Trend 14 Table 7: Table Showing Tiffany & Co Capital Intensity Trend 15 Table 8: Table Showing Tiffany & Co Revenue Valuation Trend 15 Tiffany & Co. Analysis 1: Introduction Company Introduction Tiffany & Co. is the most popular lavish jewelry corporation in the United States of America. For over a century and a half, Tiffany & co. have designed superb jewelry comprising of diamond. The company often uses Tiffany & co and just Tiffany as its main trademark, and at the same time as its trade name. Statement of Purpose In a quest to for tiffany to maintain its giant market and dominance, this paper studies the company’s current pattern applied to maintain customer satisfaction and its prolonged dominance, with the aim of gaining deep knowledge on success of this company and devising applicable through which it can improve its current level performance. Roadmap This study involves a quantitative and qualitative analysis (a SWOT analysis,) for tiffany to gauge its current position. This analysis also gives recommendations to potential investors and the company at large on its current position. The weaknesses and threats identified through the SWOT analysis be used as a yard stick for devising applicable solutions and this is after comparing various documented applicable solutions, through various qualitative and quantitative tests, and discussed in the subsequent chapters, and the final outcome is mainly targeted at coming up with an effective criteria for investment for Tiffany & Co. Criteria for Investment To come up with concrete recommendations, this study will focus on all the most trusted company profitability, growth and development analysis, evaluations and strategies, thus: the company’s commitment to CSR, potential to expand, profitability, adaptability, rising stock price, and competitive advertisement. 2: Qualitative Analysis Qualitative analysis is a method that is used to assess investigate or company opportunities and decide by use of non-quantifiable method. It is mainly used as a tool to get a close look at a company. However, Sound company conclusion often comprises incorporation of both methods. (investinganswers.com) to help us analysis tiffany & co. we are going to perform a SWOT analysis for the company. SWOT Analysis is a method to evaluate the strengths, weaknesses, opportunities, and threats which affect a particular company’s progress and decision making. (wikiwealth.com) 2.1: Strengths These are inside generated extended terms that give tiffany advantage in the jewelry industry. Strength offers tiffany prolonged advantage over its competitors. Strong local and international existence The company has enormous store located in busy traffic places where customers can easily purchase products. It has stores in Singapore as from 1991 and over the entire period it has created a huge local existence. The company has expanded market throught the world with major destination of its products in the US and Asia. The company also has market in selected African countries. Positive brand image The brand has dominated the United States market as well as market outside the US. Singapore people are vast with the brand. It’s fashionable and stylish brand image reliability give it an international reputation. Tiffany products are well recognized for their quality which promotes its brand. Well known for its silvery jewelry Singapore dwellers for example, the sterling silver jewelry is very much popular and common among women. It is also a common product offered as gift worldwide. Sterling Silvery jewelry is among the latest advancements in tiffany product. This product has had a positive market response with high sale in Asian countries and the United States. (forbes.com) Strong direct selling strategy The company has a direct allocation channel. Within the United States, there are direct sales through tiffany stores and via business to business selling. Worldwide there are tiffany supply stores and boutiques. Tiffany products are sold online (tiffany.com) or through catalog supply. Through its website it offers a selection of over 3,500 products. In addition, it offers online retail service through the tiffany business portal. In 2007 there were 3.2 million names on US catalog mail and internet list. This was a rise from 2.8 million people recorded in 2005.This rising trended is showing same trend each fiscal year. 2.2: Weaknesses Similarly, these are internally created. A weakness is a thing that causes issues for the essential company; it takes substantial time and attempt to solve and are generated or managed from within the company. Declining cash flows Comparing company operations for 2007 and 2006, there was a decline of 11.1%. In 2007 sales were $233.6 million while in 2006 the sales were $262.7 million. Also free cash flow went down by 51.6% ($51.2 million) in 2007 as opposed to 2006 ($105.7 million).This reduction in flow are restraining the company’s monetary position. Later this will bind tiffany’s’ venture options and dividends to share holders Limited product range A wide range of product is common in the US market contrary to markets within other countries. The US supplies benefit from a larger variety of design and limited version jewelry. In Singapore for instance, sterling silver assortment is tough. The company is not supposed to over concentrate on this but should be concerned with promotion of other jewelry to uphold consumer benefit. 2.3: Opportunity These are external circumstances that are an advantage to a business. Singapore as a luxury retail hub for Asian market Singapore is a good hub for Asian market. It is a first target for Chinese tourist to purchase luxury jewelry items. For the past two decade china and Asian countries have had a continuous positive economic growth and a change in lifestyle. Change in lifestyle has also been accompanied with demand for flashy jewelry product. Singapore acts as a hub for Asian countries market. (globalchange.com) New business venture In 2006 Tiffany signed a decade of eyewear certificate agreement with Luxottica Group for manufacturing, design and global distribution. These products are under tiffany and company trade name. This consignment leads tiffany to enter eyewear product, launch of lavish collection from 2008.This venture diversify its wide collection of products and hence enable customers to have a wide selection of products. 2.4: Threats These are outside circumstances that are demerits to a company’s success. These may include an economy uncertainty or closed economy in a SWOT analysis. Proliferation of imitation for its items Lately, Tiffany & Co did not get through with the appeal against Ebay. It launched a court suite to end its trademark breach for promotion of forged goods on its website. Since Ebay is not responsible for counterfeit vendors; the corporation has to devise methods to penalize person found guilty. Economic slowdown From a business research carried out in April 2012, approximately 34% of people are having a second thought on buying luxury jewelry and watches. This has affected the sale of tiffany product to a large extent. The slowdown in buying will finally convert to lesser profits for the company. Also a major recession that hit the western country for nearly a decade now has slowed down flown of tiffany products, hence a threat to its set goals 2.4: Stock-Picking Strategies Analysis It is no doubt that a comprehensive analysis of a company is very wide in scope, thus a part from predicting the cash flows and champing numbers, stock-picking analysis is also a very valuable qualitative factor for analysis. The management being the backbone of any prosperous company, Tiffany & Co. success is attributed to honest, transparent, and open mangers. This has been evident from their continuous reporting over a long period of time and their initiative to improve. In the year 2009, BSR was contracted by this company to conduct a material analysis, and from this exercise Global Reporting Initiative (GRI) reported that: this company enjoys the services of a highly qualified management team with very vast experience; most of the mangers have served for over five years in this company. The management operates on very positive philosophy of “honesty, transparency, and open” management, and it is through strict adherence to this philosophy that this company is managed. The board of directors and the stakeholders of this company very committed very committed to this company, and this is evident from the fast decisions making during the general meetings, and the broad stances that they make to restructure the management every now and then. Finally the company has managed to achieve suppliers, customers, and employee satisfaction, through effective management. 3: Quantitative Analysis This is a numerical scrutiny of the quantifiable figures of a business, such as the worth of property or predictable sales. It exempts from skewed evaluation of the excellence of administration. The method involves analyzing profit and loss accounts, arithmetical state of the financial system, sales and earning histories rather than looking at skewed factors like management know-how, workers attitude, and brand acknowledgment (thefreedictionary.com). 3.1: Financial Ratio Analysis Liquidity Tiffany & co. has maintained is short term goals amid global recession and low demand for luxury goods. It has had a current ratio above three for almost a decade. Its quick ratio is less compared to the current ratio as a result of high inventory level. These levels are usually a matter of concern for tiffany, it’s not as the inventory comprised of valuable commodities like gold, platinum and diamond. Table 1: Table indicating Tiffany & Co Liquidity Status Tiffany & Co 2006 2007 2008 2009 2010 2011 2012 Current Ratio 4.66 3.77 3.15 3.40 4.07 5.59 4.61 Quick Ratio 1.77 1.03 1.03 0.74 1.70 2.21 1.30 Cash Ratio 1.08 0.42 0.42 0.27 1.30 1.54 0.71 Source: Tiffany & Co Asset Management The company has an average asset management rating. It is close to the bottom or middle in the midst of its peers with regard to inventory management, entire asset turnover and set asset turnover. This is as a result of high value jewelry sells at a first-class price that attracts upper class customers and therefore do not rely on number of sales with comparison to other companies that sell law quality merchandise in large quantities. As it is a tradition for luxury co operations to experience low turnover, for Tiffany DSI is on the rise. Table 2: Table Showing Tiffany & Co Company Asset Management Trend Tiffany & co 2006 2007 2008 2009 2010 2011 2012 Days Sales in Inventory (DSI) 367.55 378.07 390.89 481.20 441.86 469.70 507.26 Average Collection Period (ACP) 20.68 23.29 24.09 21.38 21.38 22.00 18.44 Fixed Asset Turnover 2.77 2.84 3.93 3.86 3.96 4.64 4.75 Total Asset Turnover 0.86 0.93 0.98 0.92 0.78 0.83 0.88 Source: Tiffany & Co Debt Management Tiffany’s present capital formation consists primarily of equity which is in accordance with latest chronological trends. While this may at the outset appear to be a below average for the reason that the rate of equity is superior compared to that of liability, further scrutiny demonstrates the reason as to why it is good to have equity in such a case. The company operates in an extremely cyclical commerce sphere where downturn effects in wealth are exacerbated due to the optional nature of the luxury sells. This means as equity raises, tiffany is in a better to counter recession. Table 3: Table Showing Tiffany & Co Debt Management Trend Tiffany & Co. 2006 2007 2008 2009 2010 2011 2011 Debt Ratio 0.34 0.37 0.43 0.49 0.46 0.42 0.44 Debt to Equity 0.52 0.58 0.75 0.95 0.85 0.72 0.77 Days Payable Outstanding (DPO) 70.26 67.22 55.25 67.19 71.77 74.74 80.49 Times Interest Earned 16.59 15.93 22.54 12.93 8.00 10.95 14.58 Source: Tiffany & Co Profitability Tiffany has had good market profits as a result of pricing for its products. Even within the recession period, the company has maintained its profit margins. Profit margins are on the rise; 56% for 2010 to almost 60% in 2012, while operational margins rose from 16% for 2010 to almost 20% in 2012. Table 4: Table Showing Tiffany & Co Profitability Trend Tiffany & Co. 2006 (%) 2007 (%) 2008 (%) 2009 (%) 2010 (%) 2011 (%) 2012 (%) Gross Profit Margin 56.04 555.72 56.39 57.53 56.47 59.06 59.5 Operating Profit Margin 15.98 15.69 18.96 13.11 16.26 19.26 19.45 Net Profit Margin 10.63 9.59 11.01 7.69 9.77 11.94 12.05 Return on Assets 9.17 8.92 10.78 7.09 7.59 9.86 10.56 Return on Equity 13.91 140.4 18.85 13.85 14.92 16.92 18.70 Source: Tiffany & Co 3.2: Industry Specific Metrics Sales per Retail Square Foot Table 5: Table Showing Tiffany & Co Space Utilization Sales per Retail Square Foot Fiscal year ending 12/31 2009 20010 2011 2012 Americas $2,644.39 $2,252.31 $2,446.51 $2,733.14 Asia-Pacific $3,704.83 $3,686.36 $4,267.26 $4,968.22 Japan $3,704.83 $3,686.36 $3,720.47 $4,293.21 Europe $2,936.48 $3,038.90 $3,344.12 $3,766.91 Overall $3,049.06 $2,761.42 $3,005.84 $3,417.03 Source: Tiffany & Co The sales/retail square feet is an assessment of profits divided by the actual estate footage the company owns apart from the area used to store stock and hold office, it only includes retail area. If this figure is high it means that the corporation is optimizing its assets to raise revenue and minimize costs. Tiffany has gradually increased its sale per square foot which is credited for its elevated natural expansion. Tiffany is second best rank after Apple in the US for sale per retail square foot. Sales per Employee Table 6: Table Showing Tiffany & Co Employees Output Trend Sales per Employee Fiscal year ending 12/31 2008 2009 2010 2011 2012 Total Number of Employees 8,800 9,000 8,400 9,200 9,800 Total Annual Revenue (in thousands) $2,938,771 $2,848,859 $2,709,704 $3,085,290 $3,642,937 Revenue per employee (in thousands) $333.95 $316.54 $322.58 $335.36 $371.73 Source: Tiffany & Co Sales per employee is the simple metric measuring on average how much revenue an employee brings in per year. This is a valuable metric because employee pay and work costs tend to make up a big proportion of operating costs. Over the past 5 years Tiffany has managed to increase this metric every year with the exception of fiscal year ending 2009 when it hired more employees while losing revenue. Ever since on average TIF has been raising revenue at a faster rate than it higher employees. Capital Intensity Table 7: Table Showing Tiffany & Co Capital Intensity Trend Capital Intensity 2007 2008 2009 2010 2011 Average Tiffany & Co. 1.02 1.09 1.29 1.21 1.14 1015 Signet 1.01 0.92 0.93 0.90 0.96 0.95 Zales 0.74 0.66 0.69 0.72 0.68 0.70 Industry Average 0.93 0.89 0.97 0.94 0.93 0.93 Source: Tiffany & Co Capital Intensity ratio (Total Capital/Net Revenue) signifies that it (tiffany) require more money and resources to create a single sales unit. The ratio is frequently used to evaluation a company’s competent exploitation of its assets. 3.3: EV/Revenue Valuation Table 8: Table Showing Tiffany & Co Revenue Valuation Trend 2007 2008 2009 2010 2011 Average Tiffany & Co. 2.10 1.64 1.40 1.97 2.42 1.90 Signet 0.56 0.39 0.52 0.74 0.85 0.61 Zales 0.61 0.34 0.40 0.72 0.94 0.60 Peer Average 1.09 0.79 0.77 1.14 1.40 1.04 Source: Tiffany & Co EV/Revenue Assumptions The analysis of EV/Revenue multiples for Tiffany & Co alongside its competitors, the company revenue is evident for trade premium assigned. To commence the assessment we employ both the major likelihood and cynical revenue facts predictable in the pro forma income account. The faction chose to pertain the half decade chronological manifold to the pessimistic situation and the standardize manifold realized in 2010 and 2011. 4: Recommendation There is no major recommendation for a major fix within Tiffany & Co models. Rather, the company’s 100 year old tactic should be somewhat be modified and updated to cop up with the changing global economies and purchaser preferences. Tiffany & Co is facing two strategic issues. The primary one is the danger the brand, it is being alleged as of inferior quality comparative to its competitors. Since its start, Tiffany & Co has all ears on sterling silver. The triumph of sterling silver, indicated by the Elsa Peretti heart necklace has enlarged access to its brand to more market. However, enlarged availability and affordability has resulted in the Company brand trailing in status related with uniqueness and luxury. Tiffany is a vast and powerful company with a competitive advantage due to its brand in the lavishness jewelry product industry. It shows expansion potential but for the subsequent reasons it’s a recommending not buy: • The stock value reflects growth prospective and positive traits of the corporation but the stock for most parts is fairly valued. • There are many threats that exist and can unfavorably influence cash flows as well as prospective market worth. Work Cited http://brandtiffanyandco.wordpress.com/brand-positioning. Retrieved 28 November 2012 Tiffany & Co, (2007), SWOT Analysis, Data monitor. Jenn Wilcox, Scott Damassa, Zeeshan Hyder, (2007), Harkness Consulting Innovation through Collaboration, Harkness Consulting. Global change.com, Apr. 2011, Retrieved 10 Dec 2012 http://forbes.com, Tiffany & Co. (NYSE: TIF), 2012 , Retrieved 10 Dec 2012 Dietz, Ulysses Grant, Jenna Weissman Joselit, and Kevin J. Smead, (1992), The Glitter and the Gold: Fashioning America’s Jewelry. Newark. Kirk Craig, Brian Pabian, Ben Smith, (2012), Tiffany & Co, Tiffany & Co. 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