Monday, November 30, 2009

Tiffany Retailer or Commodity Play

Tiffany (TIF) reported a surprise increase in consumer demand and made some noises that the financial pulse still beats. This company tends to be viewed as the canary on the coal mine and it seems to be fine for now. The problem with the company’s valuation is getting a handle on their inventories. The book value of approximately $1.5 Billion on the balance sheet is roughly equal to 20% of its market cap. You have no idea how much is in which jurisdiction, how much is in gold, silver, platinum, diamonds or how much is in finished goods or raw material. Margins are declining due to higher costs (must be the gold right) so the consumer is not motivated by higher intrinsic value of precious metals. Yet we have no tools to measure the commodity risk.