The Franklin Fund and Tiffany & Co - Research Paper Example

 The Franklin Fund and Tiffany & Co Executive Summary Tiffany & Co. is a company with holdings that mainly operates through its subsidiary companies. The company mainly engages in jewelry manufacturing, product designing and retailing activities. However, the major portion of the sales is earned from its jewelry and specialty retailer, Tiffany and Company which operates primarily in North and South America and has stores in United States, Canada, Brazil and Mexico. Apart from these nations, a substantial amount of sale for the company products comes from Asia-Pacific and European countries. A brief history of the company Established first in New York in the year 1830, Tiffany & Co. during its initial years saw great growth prospect in the fancy and stationery goods market. With an advance of $1,000 from Tiffany’s father, 25 years old Charles Lewis Tiffany and John B. Young opened their first store at New York City. Inspired by the natural world, their products bore the mark of harmony, simplicity and clarity, which went on to become the hallmark of the company’s designs ranging from their silver hollowware and flatware to jewelry at later stages. It was in 1867, that Tiffany and Co got international recognition, when a foreign jury at Paris Exposition Universelle handed over the grand prize for silver craftsmanship. As it went on to spread its wings, Tiffany & Co. went on to establish the first American school of design, The Silver Studio. In 1886 the company created another benchmark when it launched the engagement ring Tiffany® Setting which went on to become a new symbol in the jewelry industry. Tiffany won the greatest of honors and awards and held the leading position in thee world of designer jewelry creation. Tiffany boasted of being one of the most trusted and appreciated jewelry brand for many distinguished personalities of the American society; who preferred Tiffany & Co. over any other jewelry brand. The company continually changed and updated its designs to keep pace with the changing taste of the modern customers. One can get hold of all the legendary design patterns of Tiffany in the annual Blue Book Collection. Published for the first time in 1845 this book catalogues the best of all glamorous and spectacular jewelry created by Tiffany. Today’s version of the catalogue showcases the elite range of diamonds and colored gems that have been encrusted in wide range of precious metals For its elegant style and rich heritage over the past two centuries, Tiffany has gained the reputation of being the ultimate source of gifts for most cherished occasions of life.(Tiffany & Co., 2011). A brief biography of the current CEO Michael J. Kowalski, the chairman and CEO of Tiffany & Co. is a renowned jeweler who was appointed as the president of the company back in January 1996. In 1999 he was appointed as the Chief Executive Officer who then went on to take the responsibilities of the chairman. Kowalski joined Tiffany back in 1983 as the planning director after serving Avon Product Inc in several financial management positions. In 1985, he got appointed as the group vice president of merchandising in Tiffany and Co. Michael J. Kowalski had also served as the board of directors of The Bank of New York Mellon and the board of Jewelers of America. He had completed his master’s in business administration from Harvard University after earning a bachelor’s degree from University of Pennsylvania in economics (Tiffany & Co.-a, 2011). Market analysis Tiffany & Co. is renowned for its premium and heritage style silver and diamond jewelry. Its Fancy jewelry and stationary goods items have also been able to attract the attention of modern American citizens. However, the net business of the company is based on its jewelry section that represents about 91 % of the total sale of the company. Since the major part of the company shares are in the jewelry section, its main competitors are the other American and International jewelry companies present in the market. The sales figure for Tiffany mainly comes from the American regions with around 51% of its sales coming from the two continents. While Asia and Pacific areas represents 18 % of the sales, Japan comprises of another 18% and the remaining 12% sales mix comes from Europe (Tiffany & Co.-b, 2011). Worldwide net share of the company rose by 14% which can be valued to be around $ 3.1 billion. But this increase in the market in the last quarter is mainly the outcome of the increase in sales at Asia Pacific which recorded an increase of 23%. On the other hand in America the increase was nearly 11% (Michael J. Kowalski, 2011). The main competitors of Tiffany & Co. in the industry are Cartier, the child company of Richemont and the Bugari who have emerged as a well known figure in the jewelry division of the luxury industry (Blackburn, 2004). Financial analysis Revenues and earnings over the past five years (2006-2010) With the booming U.S economy, Tiffany’s net sales earning is constantly growing. The company which recorded a net sale of $ 2,552,414 in the year 2006 submitted a net sales report of $ 3,085,290 in the year 2010. Reports show that there has been a gradual growth in the company’s sale in the past five years. . Keeping pace with gradual rise in the net sales, the gross profit of the firm is also increasing and reached $ 1,822,278 in 2010 from 2006’s $ 1,468,990. Apart from the net sales and profit earning, the company’s other earnings from common shares and diluted common shares also contribute to the earning of the company which amounted to about $ 128,406 in 2010. The gross profit percent increased from 57.8% in 2008 to 59.1% in the year 2010. Figure 1: Financial Statement for the year 2006-2010 (Source: Tiffany & Co.-c, 2010, p.31) History of the share price over the last five years With the share volume of 2,802,236 at 2011 Tiffany, according to the New York Stock Exchange under stock ticker symbol ‘TIF’, has a share price of 75.66 as on May 31, 2011. The price of the share is gradually increasing in the initial stages of last five years. The booming U.S industry helped a lot in the growth of the company during the year 2006. The share prices ranged from $ 39.24 in 2006 to $ 46.03 in 2007. But during the recession phase in the year 2008 the share price had a sudden drop from $ 46.03 to $ 23.63. At the global recovery stage during the year 2009, the company recovered at a very good pace and again regained its share price to $ 43.00. Then with steep increase in share price, the company shares reached a height of $ 62.27 in 2010 and holds a very strong position in the market at present (Tiffany & Co.-d, 2011). Figure 2: Share Price in last 5 years (Source: Tiffany & Co.-d. 2011) EPS ratio over the past five years The basic normalized Earnings per Share i.e. EPS of Tiffany has seen a steady growth in the last five years. The economic slowdown though affected the earnings during the year 2010, it has again recovered and promises a strong earning prospect in coming years. The EPS has reached from 2.08 to 2.97 during the past five years. The diluted Normalized EPS has also increased from 2.04 to 2.93 in 2011. This pattern in the EPS of Tiffany financial statement is a great sign for investors like Atlas Investments in coming years (MsnMoney, 2011). P/E Ratio over the past five years The Price-to-earnings is the ratio which means that investors are paying more for each unit of net income. But on the other hand, if long term benefits are considered then the higher P/E ratio provides a good prospect for the investors. The higher stock price gives an investor a chance to earn more when the price goes even higher. The growing P/E ratio of Tiffany over the past five years indicates a very good prospect for Atlas Investments to invest in the company’s share. The average P/E ratio of Tiffany & Co. for the last five years though went down in the year 2010 but it is gradually increasing in the present year from 15.30 to 17.00 (MsnMoney-a, 2011). Competitor analysis Competition in the Jewelry industry is distributed in various segments. Sometimes, while some competitors are specialized in the core jewelry segment, few other competitors are concentrated over various other product lines. Competitors have also gained reputation worldwide for their unique style and quality. The major competitors of Tiffany & Co. at their primary U.S market are the Bugari & Cartier, the child company of Richemont along with few others. These companies also compete with Tiffany & Co on the basis of their market reputation which is almost as strong as that of Tiffany & Co. Few competitors are also there who follow the advertising strategies like sales promotion and discounts for their sale process. They primarily concentrate on advertising price promotion. Tiffany and Co. however, firmly believe in their quality of product, brand image, customer service and unique value-priced merchandise. The company doesn’t go for price promotional advertisement for generating sales. The quality of the stones provided by the company is rarely available; thus, the prices for the same defer accordingly. Given the market it tries to cater, the company mainly concentrates on the quality assurance rather than the price of the product and offers the same for the premium segment of the market (Tiffany & Co.-c, 2010, p.22). What do investment analysts say about Tiffany & Co. The company invests in purchasing diamonds from different regions and need investment from shareholders and several other interested investors. The company’s financial condition is in the growth stage and the earning per share is also high enough. A gradual rise in price of shares has been noticed which gives a very good prospect for investors who are planning long term investment in the firm. The rising markets after the recession period is much less risk prone than before and the investment in a company like Tiffany and Co. can lead to good profit from its shares value. According to the investors, the Price-to-Earnings ratio analysis also gives positive signs for the investments (Tiffany & Co.-e, 2011). Findings of the Research Tiffany & Co. has shown a steady growth which has been accelerated by the booming American economy in past. Although during the recession period the company’s share price fell to an extent, but it has shown good recovery in recent years according to their financial statement in the last quarter of 2010. The share price is rising at a very fast pace. Investors like Atlas Investments should invest right at this moment when the share prices are recovering with the market. In long run, the company will profit from the investments done on the shares of Tiffany & Co. Recommendation Tiffany & Co. has a very good growth prospect in coming years. The investment made by the shareholders on this company’s shares will be much more secured than investment on other companies. The growth in the sales of the firm with the growing U.S economy is a good and favorable sign for the investors. The industry’s growth rate in the last 5 years is around 13 % and that of the company’s is around 12.10 %. According to estimations, in the next five years, the company is expected to grow by around 13.90 %. Thus 5 % per year target return can be earned in the next five years. But on the other hand the volatility of Tiffany & Co. has huge risk due to the beta value of 1.73 which is however, controllable. Thus $1 million investment can be a risky one for Atlas Investments (MsnMoney-b, 2011). Reference Blackburn, S. (2004). COMPETITORS WITHIN THE INDUSTRY. Retrieved on June 1, 2011 from the URL http://smu.edu/ecenter/discourse/blackburn.htm. Tiffany & Co. (2011). About Tiffany & Co. Retrieved on June 1, 2011 from the URL http://press.tiffany.com/About/Tiffany/TiffanyHistory.aspx. Tiffany & Co.-a. (2011). About Tiffany & Co. Retrieved on June 1, 2011 from the URL http://press.tiffany.com/About/Tiffany/MichaelKowalski.aspx. Tiffany & Co.-b. (2011). Shareholders Information. Retrieved on June 1, 2011 from the URL http://investor.tiffany.com/faq.cfm. Tiffany & Co.-c. (2010). 2010 Annual Report. Retrieved on June 1, 2011 from the URL http://www.shareholder.com/visitors/DynamicDoc/document.cfm?DocumentID=2945&CompanyID=TIF&zid=4aa3a869. Tiffany & Co.-d. (2011). Shareholders Information Retrieved on June 1, 2011 from the URL http://investor.tiffany.com/stocklookup.cfm. Tiffany & Co.-e. (2011). Shareholders Information Retrieved on June 16, 2011 from the URL http://investor.tiffany.com/calculator.cfm. Kowalski, M. (2011). CEO’s Annual Letter. Retrieved on June 1, 2011 from the URL http://files.shareholder.com/downloads/TIF/1275347911x0x457596/07e9f963-2d66-4b29-ada2-6426ec49c64f/CEO_s_Letter_2011.pdf. MsnMoney. (2011). Financial Results. Retrieved on June 1, 2011 from the URL http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=US%3aTIF. MsnMoney-a. (2011). Key Ratios. Retrieved on June 1, 2011 from the URL http://moneycentral.msn.com/investor/invsub/results/compare.asp?Page=TenYearSummary&symbol=US%3aTIF. MsnMoney-b. (2011). Fundamentals. Retrieved on June 1, 2011 from the URL http://investing.money.msn.com/investments/company-report?symbol=US%3aTIF. Read More