Portfolio

Forecasting: Tiffany & Co. (TIF) Weaker-than-expected Results

Using on-line job postings to infer a company’s true outlook proved exceptionally useful in the area of retail. The retail sector is normally dependent on physical stores to sell their products. On-line sales have impacted in-store sales for some, but many companies are still reliant on physical stores – and even on-line reliant companies experience a surge during certain periods. Retailers focusing on luxury goods and especially those heavily exposed to Holiday Season sales are useful examples of companies that still rely on seasonal hiring to fill gaps and make sure their companies are prepared for peak demand.

There are many examples of such retailers. One that stands out is Tiffany & Co. (TIF). Its luxury focus and the tendency for its 4Q to be its strongest in terms of revenue make TIF an excellent example.

By tracking on-line job postings, we can get a better idea of the company’s internal forecast for demand. Though management will often provide broad ‘guidance’ as it relates to the coming quarter(s), it normally will not provide specifics. An analyst following job postings, however, can glean important insights into what the actual internal forecasts of coming demand. For instance, if a luxury retailer expects banner demand in the next quarter(s), the management will likely want to hire significantly more people to make sure that demand is met with a more complete staff. You would presumably see a surge in job postings as the company ramps up. Conversely, the same luxury retailer when expecting weakening demand would likely hold off on hiring which would become apparent by fewer job postings.

In the case of TIF, ZettaCap saw significantly weaker year-over-year job postings going into the Holiday Season. By early December, the trend was apparent and ZettaCap published a report, highlighting the apparent fundamental deterioration as well as a warning concerning its stock price:

“Put in very simple terms, ahead of its highest revenue generating quarter of the year, TIF is acting less aggressively in hiring terms than during the same period last year. This appears somewhat unusual considering that the company’s revenue is up by around 6% year-on-year. In other words, the company’s Job Postings are 10% lower whereas it revenues are 6% higher. Unless luxury retail has become much less labor intensive, this trend does not appear sustainable.”

“With Tiffany & Co. publishing fewer Job Postings, it does not appear that management is preparing for an overly strong last quarter, which for a luxury retail company could have fairly negative repercussions for the stock.”

Approximately one month later, in January, the company announced a ‘sluggish’ Holiday Season  and cut its annual forecast. The markets were shocked by this announcement with the stock falling 14% on the day, its greatest one-day decline in 10 years.

Important because:

• First accurate forecast of worse-than-expected quarterly results using job posting data.