Tiffany & Co. (NYSE: TIF) has demonstrated strong performance in 2020 even though it has been quite a challenging year so far. Its performance has been so good that it has been paying dividends when many other companies have been reporting losses.
The company’s dividends also indicate that its position was strong enough to avoid the economic impact of the coronavirus pandemic. The company announced a quarterly dividend of $0.58 per share for the common stock in February. It also announced the same dividend of $0.58 per share for the next quarter. This indicates that the company’s performance during the quarter was not as affected by the economic fallout that resulted from the COVID-19 lockdown restrictions.
Q1 2021 financials
Despite the healthy dividends, the company reported that its global net sales took a hit during the quarter due to the COVID-19 economic fallout. The net sales dropped to $556 million after a 45% dip during the quarter. The next sales dropped by 44% on a year-over-year basis. This decline is mainly associated with the closure of many of the company's stores across the globe during lockdown.
Tiffany’s net loss for the quarter was $65 million, equivalent to a net loss of $0.53 per share in Q1 2020. In comparison, the company reported a net income of $125 million equivalent to $1.03 per diluted share in Q1 of 2019. The company’s total net sales in the North American market amounted to $225 million after a 45% drop during the quarter. Its sales in the Asia-pacific market came in at $174 million after tanking by 46% from the previous quarter.
The retailer also experienced a 40% decline in sales in Japan which is also one of its biggest foreign markets during the quarter after reporting $86 million. It reported $61 million in total sales in Europe after a 40% decline. The decline in the sales highlights the disruption caused in the retail segment by the coronavirus pandemic.
How the coronavirus pandemic influenced online sales
One of the reasons Tiffany’s was able to stay afloat and enjoy significant sales in Q1 2020 was because it was able to quickly double down on its online strategy. The closure of many stores meant that the company had to double down on e-commerce. Its ability to act fast yielded good results. While brick and mortar retail sales were affected, the online sales enjoyed a significant jump. The company’s online retail sales surged by 23% during the quarter and this spike was observed in key markets such as the U.S, China, and the UK.
Tiffany's observed the rise in e-commerce sales in March, April and well into May as lockdown measures forced people to stay at home. People shifted to purchasing items from the company’s e-commerce platform. In other words, the online sales provided a good buffer for the company to have a soft landing despite closing many physical stores. The online sales were also significant enough to facilitate the issuance of dividends at the same rate as in the previous quarter, which is a testament to the benefits that the company has been enjoying thanks to an online presence.
How has Tiffany’s diversification contributed to the company’s performance?
The online presence is not the only factor that has been playing a key role in the company’s performance so far. For example, the company announced in 2019 that it was rolling out a collection that would specifically target the male demography. The company also revealed plans to collaborate with a retailer called Dover Street Market on unique pieces. This was an interesting announcement because the company has never been involved in such a partnership before.
The company’s focus on diversification comes at a time when it has been facing heavy competition as more players jump on board with fresh strategies and also at a time when retail trends are changing. What has been working before for companies in the industry has slowly been changing and thus the need to adapt to the changes. This is why Tiffany's decided to double down on the male market because it is one of the key pillars of growth in the industry.
Why Warren Buffett turned down a chance to acquire Tiffany’s
Earlier this year, legendary investor Warren Buffett turned down a chance to acquire Tiffany’s and that decision certainly aroused questions among the investor community. This is because Buffett previously expressed interest in having Tiffany’s in his portfolio. The decision not to acquire Tifanny’s was reportedly influenced by advice from the billionaire investor’s bankers.
Buffett's investment patterns in 2020 indicate that he has been cautious and it is no surprise. The coronavirus pandemic has resulted in uncertainties in the market and it is not clear. The fact that there is no cure also means that the uncertainty will likely continue to exist. Making such investments does not align with Buffett's investment strategy and it also makes sense to avoid such an investment when the markets are currently under so much pressure.
Warren Buffett has previously invested in Tiffany’s, which means that he thinks it would be a good investment. He acquired Tiffany’s bonds worth $250 million in 2009 during the financial crisis and this investment helped the company to overcome the market uncertainties at the time. However, he decided not to acquire the company this year due to the current uncertainties in the market.
The acquisition of Tiffany by LVMH
According to the Financial Times, the Berkshire Hathaway founder had been invited to bid for Tiffany’s after luxury goods company LVMH expressed its interest in the jewelry seller. Buffett was expected to present a counteroffer but then billionaire declined. Tiffany's then struck an acquisition deal with LVMH valued at $16.2 billion.
LVMH’s bid to acquire Tiffany’s was announced as early as November 2019 and the luxury goods company aimed to spend as much as$135 per share in cash to acquire the jewelry company. The acquisition talks went on towards the end of 2019 and early 200, during which Buffett was invited to bid for the acquisition. LVMH execs revealed that the acquisition will allow them to enjoy a stronger presence in the U.S market. It will also provide a particular focus on the company’s Watches & Jewelry segment.
Despite settling on the deal earlier this year before the coronavirus situation worsened. There was speculation that the LVMH would seek a restructuring of the deal following the onset of the pandemic. However, sources familiar with the situation revealed that the company does not intend to renegotiate. The expectation that a renegotiation would be in the works is because the markets have been facing a lot of pressure due to the pandemic, and thus business would go down.
One of the reasons behind the decision not to renegotiate is the fact that doing so would cause further legal complications. Some of LVMH investors have also expressed concerns that they might be overpaying for the acquisition. There is also the concern that the deal might not be lucrative as they expected especially due to the economic pressure caused by the pandemic.
A consultancy firm called Bain predicted that sales in various major retailers that sell high-end cosmetics, jewelry, handbags, and clothing will drop by as much as 35% in 2020. This already took shape especially when the lockdown measures were implemented, leading to the closure of non-essential businesses in February, March, and April.