Business Analysis Of Tiffany & Co. New York

Background of the Company and the Industry

Discuss about the Business Analysis of Tiffany & Co. New York.

Tiffany & Co. is the trendsetter in fashion industry of USA, originated in New York. The company started its journey since 1837 through pioneers Charles Lewis Tiffany and John B Young with the start-up capital of US$ 1,000 from family source of Tiffany. After starting the journey, the company had crossed different stages of its trendsetting performances by setting landmarks of their performance. This company is involved in fashion industry. Trend of buying pattern of this industry is never considered as a priority buying and always goes with impulse buying. With the quality assurance and innovative designs, the company gradually acquired different level of success, which had put them as one of the top contender in jewelry industry in USA. Gradually the company was involved in gems industry with introduction of precious gems in their catalogue. The company was involved in purchasing and selling of traditional and historical gemstones from different countries of the world, exhibited them in their different counters for the rich Americans (Anderson, 2016). The company thus justified its role by providing exclusive and exquisite items of fashion industry with emphasis on different costly products in the forms of crowns and gems. After the timely exit of the first generation, next generation was ready to take over the baton and had introduced himself as an esteemed designer well capable of designing the eminent buildings like White House. The company has proved its responsible attitude towards complying with the norms of social and environmental benchmark for procuring their raw materials from the nature (Madden, 2016). As per CEO and Chairman of the company, Michael J. Kowalski, the position of the company gave them the honor to be a leader in the luxury jewelry market. Being the leader the company has to show their responsible attitude as a stakeholder by setting the trend of the business in such way that it should comply with the basic trusts like protecting the environment, showing due respect to the domain of human rights and extending support for the society and the community in which the company belongs. The excellence of this company had put them in the place of Hall of Fame as the symbol of heritage due to their quality management with highest level of professional design expertise. They are spread over the entire world with more than 200 stores with the ability to provide the service of trusted producer of gifts, which are considered as lifetime treasure (Tiffany, 2017).

Financial Analysis

To discuss financial analysis, we will highlight on certain issues of the company, featured in the accounting management of the company.

From the financial statements of the company for last years, it is being observed that the company is following conservative outlook towards maintenance of its financial practices by ensuring employment of GAAP with the restrictive fields to honor Corporate Law of US. The company normally follows Average Cost method for their inventory maintenance by discontinuing LIFO method, which was earlier followed by them. This inventory management system is not as per the normal practice of industry, which is FIFO method. The company is practicing straight-line depreciation of assets and reviewing of goodwill occurs annually to ensure proper treatment with impact of impairment as applicable by FAS 12. The company follows principle of POS revenue recognition, which does not allow recognizing revenue until physical purchase is being made and subsequently booked (Techtarget, 2016).

The benefit of following GAAP as accounting practice provided the company advantage in treating different financial information like goodwill, depreciation, cost of inventory, pension accounting, etc. by inflating profit level (Stewart, 2013).

To find out the A/R Turnover ratio, consideration of sales divided by A/R is necessary. This element is instrumental to differentiate sales on account and sales on cash. In desirable situation, the ratio should be high which depicts the higher level of cash sales and lower level of sales on account. In this case Tiffany is not performing as per desired benchmark as set by the industry. Lower A/R ratio represents lower inflow of cash and this restricts the positive surplus on working capital (Accountingtools, 2017).

Return on Equity or ROE of the company is with positive trend that is better than the competitors are and of the industry trend. This is good for investors and they are always keen to invest in Tiffany with portrayed high returns on investment (Kennon, 2016).

This is another instrument to understand the operating efficiency of the company. The company always produces comparative high level of gross margin that has projected the ability of the company to generate operating profit from each transaction of sales made by the company than that of competitors and industry trend. This is due to price mark-ups and the customers are willing to this practice of paying extra price worth of their return on value for money. This is possible for excellent and high power brand name of Tiffany (Kimboal, 2016).

Analysis of Tiffany & CO. Financial Report for Last Five years
Heading	2016	2015	2014	2013	2012	Variance
Earning Data						2016	2015	2014	2013
Net Sales	4002	4104	4250	4031	3794	-2.5	-3.4	5.4	6.2
gross profit	2490	2491	2537	2340	2163	0.0	-1.8	8.4	8.2
Selling, general and admin costs	1769	1731	1646	1557	1466	2.2	5.2	5.7	6.2
Net earnings	446.1	463.9	484.2	181.4	416.2	-3.8	-4.2	166.9	-56.4
net earnings per share	3.55	3.59	3.73	1.41	3.25	-1.1	-3.8	164.5	-56.6
Balance Sheet and Cash Flow Data
total Assets	5098	5122	5172	4745	4629	-0.5	-1.0	9.0	2.5
cash and cash equivalent	928	844	730	346	505	10.0	15.6	111.0	-31.5
inventories	2158	2225	2362	2327	2234	-3.0	-5.8	1.5	4.2
Debts- short and long term	1107	1096	1108	996	957	1.0	-1.1	11.2	4.1
Stockholders’ equity	3028	2930	2851	2734	2611	3.3	2.8	4.3	4.7
Working Capital	2941	2779	2851	2431	2485	5.8	-2.5	17.3	-2.2
Cash Flow from operating activities	702	814	615	154	328	-13.8	32.4	299.4	-53.0
Capital expenditure	223	253	247	221	220	-11.9	2.4	11.8	0.5
stockholders’ equity per share	24.33	23.1	22.04	21.31	20.57	5.3	4.8	3.4	3.6
Cash Dividend paid per share	1.75	1.58	1.48	1.34	1.25	10.8	6.8	10.4	7.2
Ratio Analysis
as a Percentage to Net sales
Gross profit	62.2%	60.7%	59.7%	58.1%	57.0%	2.5	1.7	2.8	1.8
Selling, general and admin costs	44.2%	42.2%	38.7%	38.6%	38.6%	4.8	8.9	0.3	0.0
earning from operation	11.1%	11.3%	11.4%	4.5%	11.0%	-1.4	-0.8	153.2	-59.0
Capital expenditure	5.6%	6.2%	5.8%	5.5%	5.8%	-9.6	6.1	6.0	-5.5
Total debt to equity ratio	36.6%	37.4%	38.9%	36.4%	36.7%	-2.3	-3.8	6.7	-0.6
All figures in Million USD except net earnings per share, stockholders’ equity per share and cash dividend per share.
All ratios are shown in percentage

Standard accounting practice- Tiffany

Table 1

Above table shows the analysis of financial statements of the company for last five years as extracted from the officially published financial statement for the stakeholders. Different areas of financial statements are considered for appraising the financial performance of the company. Main areas considered are earning data, Balance Sheet and Cash Flow Data, and Financial ratio analysis.

Earning Data- Earning data segment consists of net sales, gross profit, net earnings, sales, general and administrative expenses, net earnings per share and net earnings, which are shown in the table with year-wise variance analysis. The figures depicted in the table had shown respective variance in comparison with last year-figures(Shareholder, 2016).

Balance Sheet and cash flow data- This segment consists of total assets, cash and cash equivalent, inventories, debts-both short and long terms, stockholder’s equity, working capital, cash flow from operative activities, capital expenditure, stockholder’s equity per share and cash dividend paid per share, which are featured in the financial analysis table along with variance analysis comparing with last year.

Ratio Analysis- This segment is featuring with basic financial ratio analysis derived as a percentage to net sales including gross profit, selling ,general and admin costs; earning from operation, and capital expenditure. Other ratio is total debt to total equity ratio. All these ratios are helpful for stakeholders to take effective decision about the company so far investment; lending and other aspects are concerned(Tiffany, 2016).

 

Table 2

The extract of CSI Market analysis report is appended above (Table 2) as found in their 2017 release. As per CSI Market analysis report of 2017, different companies, out of whom Tiffany procured third spot, dominate global jewelry industry. The biggest stakeholder of the market is Ross Stores Inc while Michael Chors Holdings Ltd. procures the second place. The companies of jewelry industry relate this analysis to revenue contribution. For the issue of derived net income for last year, Ross Stores is contributing 52% while Michael Chors Holdings is contributing 25%. Tiffany had proved its efficiency by showing 20% margin contribution. So far net margin contribution is concerned; Tiffany is topping the table with 10.33% (Csimarket, 2017).

Below Table with Table No. 3 is showing the analysis with percentage contribution figure of the companies’ performance in respect of total organized jewelry industry represented by first three contenders of this industry (Csimarket, 2017).

Competitors’ Data of first three Jewelry industry stakeholders
company	revenue		net income		net margin
	total	%age contribution	total	%age contribution
Ross Stores Inc	13084.19	46%	1148.04	52%	9.71
Michael Chors Holdings Ltd	4493.7	16%	551.5	25%
Tiffany & Co	3962.1	14%	448	20%	10.33
Approx Market	28711.71		2217.2		3.78%

Table 3

The company is running their business with successful continuation, as featured through their financial achievements over the period. The company has certain adopted strategies, which make them a stalwart in this industry. The first strategy is their brand value. Brand value of any organization dictates the terms of its supremacy in the market. With existence of more than a century in the fashion industry and customized jewelry industry, the name of Tiffany & Co. is well known to the stakeholders of the company including customers. This brand image is high priority for the company that they are well aware off and always prioritize this issue with effective branding which is elementary to create market resilience. The CEO of the Company, Michael Kowalski had expressed their views about the strategy of the company by stating that the company is not interested in changing dramatically in their strategies, which are prevalent in the industry of luxury brands. The company is managed with long- term strategies, which can ensure the best of the results for the company. The company is more prone to believe on the core values, which support to strengthen their brand image (Hellman, 2015).

Net sales/ net receivables

The PESTLE analysis of Tiffany & Co. can show the positive and negative outlook of the company which the company faces for running their business:

Political- As the company is engaged in their business in the domestic market of US and other overseas market, the company has to be more aware of the changed political scenario of the countries where they operate. Entry in new market is always depending upon the political policies of the country for any company. Tiffany is no exception to that. While entering in new market of Asia, compliance of different political policies can make barrier to the company that needs prior scrutiny and proper market research by the company. One of the main areas of concern is foreign trade regulation of the country where the company is intending to enter and this should be critically analyzed to ensure feasibility of the future business in that country (Hellman, 2015)

Economical- The economic analysis of this industry insists on the concept of globalised economy. This economy is alluring companies to expand their business in different companies abroad in order to ensure greater turnover and subsequent profitability. The possible new market for the company is Asia, which is picking up with high GDP and more purchasing power of the people of that continent. The changed scenario of global economy is putting more money in the wallet of the people, which they can spend to satisfy their impulsive needs. As jewelry is one of the major impulsive needs to satisfy the ego of possession for the people, the company can exploit the situation. At the same time, the company has to understand the buying ability of the target audience and restructure their product mix in order to ensure higher turnover with lesser value items (Sarah, 2014).

Social- The social analysis of this business is mainly highlighting two basic features- pampering the dream of the customers and the human rights of the labor. The target audience of this industry is well off with their wealth and can think of spending money in luxury items. To them, money is not the main criterion; instead, the basic goal is to ensure satisfaction of their own image. Human rights are the other area need to be noticed with proper application of ethical use of labor, and supply chain management. These are the areas, which are well under the scanner and the good name of Tiffany can be adversely affected in case of such action, which can affect the ethical issues in negative way.

ROE

Technological – Technological analysis is mainly highlighting the application of latest technology in the industry. Tiffany, being one of the market rulers, has to ensure the adaptation of latest technologies in order to ensure best possible deliverance to the customers. The use of latest technology of the industry is also being able to reduce the cost of manufacturing and deliver best possible products to the customers (Researchandmarkets, 2014).

Legal- The legal analysis demands the compliance of applicable legality of the business in the countries the company operates. Tiffany is mainly involved in US, Europe, and now expanding their operation in Asia. As a responsible business stakeholder, Tiffany has to ensure compliance of existing laws of the countries as well as to ensure the future compliance of the legal issues upcoming in different countries of operation.

Environmental- Environmental analysis demands Tiffany to ensure operations, which are environmental friendly. Earlier environment was not a big factor for running business, but the latest trend of gradual awareness on this issue is causing concern as the business of the company is depending upon the raw products, which are acquired from mines. The maintenance of balance of the environment is getting to be a major issue and Tiffany is well aware of dos and don’ts of this industry and complies with strict adherence as per global environmental authorities.

With the above critical discussion on PESTLE analysis, it is evident that the company is always attentive to different issues related to these factors and always takes proper actions as per requirement to meet the need of the criteria with ethical business practice.

Competitive Rivalry-This force seems to be high as the competitors are famous in the world of jewelry industry and they can go to any extent to prove their supremacy in this industry.

Bargaining power of suppliers-This force is high as the suppliers of raw materials are limited in numbers and they can bargain their prices of supplying raw material to that extent for which the producers are willing to pay.

Bargaining power of buyers-This force is low as the buyers have to pay for their choices as per the price fixed by the manufacturers and have little or no option to bargain.

Threat of new entrants-This force is medium as this industry is exclusive in nature and attracts of block of capital with high magnitude. Hence the new entrants thought twice before entering in this industry.

Gross margin

Threat of substitute products-This force is recognized as medium to high as new replacement of existing products are there to clinch the market share of this industry with innovative design and substitute replacement of raw materials (Academon , 2016).

Above discussions of Tiffany are mainly evolved in the domains of financial model and conventional analysis. While financial model is trying to highlight different financial information and thus wants to justify the financial situation of  the organization, conventional analysis as per management tools is mainly involved in highlighting other factors which are contributing to the business prospect of the company. However, these model and analysis have their shortcomings too, which are to be understood for assessing the future scope of business of the organization (Citeseerx, 2010).

Basic financial model followed for assessing the performance of any company is to study different statutory audited financial reports published by the company. The financial reports thus passed in the annual general meeting of the company are presented for stakeholders. The reports are dependent upon the management of company who are instrumental in preparing those reports and the honesty of the auditors who are authenticating the same. Different financial reports are projecting the historical financial positions of the company so far its performance and its financial condition is considered. In the present case of Tiffany & Co, the financial model considered to assess the financial positions of the company is through its income statement and consolidated financial position. However, these financial statements are not projecting the future financial scope of the company. In addition, it does not provide information about the competitors’ activities with comparison to understand the position of the company. This information can only be gathered by collecting and collating different information from other sources to conclude about the condition of the company.

Conventional analysis of different management tools to assess the performance and future projection of any company are mainly based on different facts and information, which are scrutinized through the model with application of management skills. Most of the analyses are based on hypothetical approach with logic and thus the critique tries to reach the inference in order to justify that. The authentication of those gathered information always raises question and the subsequent inference always creates debate among the critiques. PESTLE model is highlighting on the performance of the company with projected future scope through different factors, which are mainly instrumental in judging the scope of operation of the company with the prospect to excel in future. These analysis cannot be taken as final and granted and the management gurus always depending upon different models of conventional analysis in order to arrive at the common platform which can be able to give justified conclusion (Kimboal, 2017).

Analysis of financial statement of Tiffany & Co

Conclusion

The discussion on Tiffany about their performance and history has projected good amount feedback depending upon the financial analysis and the conventional management analysis. The company has a good record of accomplishment of business in luxury industry and with the efficient management; the company tries to hold the key of the industry. It is evident from the article that the company has rich tradition of historic presence and successful running of business. The area of activities of the company needs to be focused on the market and the company is doing that with efficiency. The company has enough scope of improvement to sustain in the market for which some recommendations are featured in the last part of this report.

Following recommendations for Tiffany & Co. are made to complete this report:

• Thought of diversification
• Production of low range products
• Strengthen brand image and exclusiveness
• Stress on innovation to enjoy the competitive edge of the market
• Insistence on traditional product range with logical pricing

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