Tiffany Investors Brace for More Blues Ahead of Holiday Report

(Bloomberg) -- Et Tu, Tiffany & Co.?

That’s the question that appears to be on investors’ minds as the upscale retailer gets ready to update Wall Street on its holiday sales. Short sellers have been increasing their bets that shares will decline. In the options market, the total number of put contracts exceeds calls by a ratio of 1.4-to-1, and investors are positioned for an outsize move in the wake of the report.

Tiffany, known for its fine jewelry packaged in robin’s-egg blue boxes, is set to unveil its sales results for the November-December holiday period on Jan. 18. The report comes as U.S. retail stocks have already fallen under pressure after results from Macy’s Inc., Kohl’s Corp., Barnes & Noble Inc. and others showed the season wasn’t as strong as some had expected.

Short interest in Tiffany has been building even as the stock extended its plunge to a two-year low. As of Dec. 31, 8.4 million shares, or 7.3 percent of the total available for trading, were sold short. That has since risen to around 10 million shares, or 8.3 percent of the float, according to data compiled by IHS Markit.

The increase in bearish sentiment has “likely coincided with a decline in hedge-fund long positioning (which has prompted prime brokers to borrow all shares required for short positions),” Markit analyst Samuel Pierson said by email.

Tiffany’s shares are trading around 40 percent below their record high reached six months ago. The decline was driven in large part by concern that luxury retailers are going to be particularly hard hit by China’s economic slowdown. Tiffany gets about 40 percent of revenue from the Asia Pacific region, including China and Japan.

Last year, the company’s constant-currency comparable-store sales rose 3 percent for the two-month holiday season. Telsey Advisory Group analyst Dana Telsey said in a research note that she expects a similar result for 2018 in the company’s report on Friday.

Tiffany may also comment on its full-year outlook, which currently calls for worldwide net sales to increase by a high-single-digit percentage and net earnings in a range of $4.65 to $4.80 per diluted share. David Schick, an analyst at Consumer Edge Research, wrote Friday that his model “suggests further softening” in the Americas and Europe, while his analysis of Hong Kong travel data suggests “more resilience in Asian markets is possible.”

Schick said the share price may already reflect a more cautious global outlook. Telsey said Tiffany’s valuation looks attractive, citing the company’s brand value and real estate positioning. Both analysts have the equivalent of a “buy” rating on the shares.

Meanwhile, Tiffany’s implied volatility is elevated heading into next week’s holiday sales report, with January trading around 55 percent versus a three-month historical volatility of around 43 percent. The January at-the-money straddle shows that options investors are expecting a 6.3 percent move in the shares over the next week.

--With assistance from Joshua Fineman.

To contact the reporters on this story: Janet Freund in New York at jfreund11@bloomberg.net;Gregory Calderone in New York at gcalderone7@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Courtney Dentch

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