Tiffany & Co continues to tumble

Tiffany & Co will report its second-quarter results on 27 July, and the jewellery giant will suffer from the economic slowdown in China.

Tiffany & Co sign
Source: Bloomberg

Tiffany & Co shares have had difficult 2015, and I foresee more turbulence ahead as the company was already suffering from a strong US dollar, and in light of China’s currency devaluation the problems are only beginning.

The company warned that first-quarter profits would slip by 30%, but in fact they only fell by 17%, and the share price held up relatively well on the back of it. The strength of the greenback was cited as the reason behind the warning.

When the dollar is riding high, it hurts both Tiffany & Co’s online overseas sales, and the in-store sales as fewer tourists will visit its shops in the US.

The move by Beijing to devalue the yuan versus the dollar will have a negative impact on Tiffany & Co’s futures sales, and the true impact will be revealed in quarters to come.

Western luxury goods companies like Tiffany & Co have been in the firing line since China devalued its currency, and it will remain in focus until China starts to show signs of stability.

When Tiffany & Co reveals its second-quarter results, the market is anticipating revenue of $1 billion and EPS of 90 cents, compared with first-quarter revenue and EPS of $962 million and 81 cents respectively. The company will report its full-year numbers on March 2016, and traders are expecting revenue of $4.32 billion and EPS of $4.23. These forecasts represent a 1.6% increase in revenue and 0.7% rise in EPS.

Equity analysts are very bullish on Tiffany & Co, and out of the 31 ratings, 15 are buys, 15 are holds, and one is a sell. The average target price is $102.75, which is 25% above the current price.

The number of short positions being taken out on Tiffany & Co has increased by 27% since the company revealed its first-quarter results, and the short interest on Tiffany & Co is at a ten-month high.

Tiffany & Co’s share price has been trading lower since August, and the support at $80 is the initial target. If that mark is punctured the next big level of support will be found at $70. The resistance at $86 will come into play should the stock move higher. 

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