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Tiffany & Co. (TIF), Fossil Inc (FOSL), Signet Jewelers Ltd. (SIG): Having Breakfast?

Tiffany & Co. (NYSE: TIF)Tiffany & Co. (NYSE:TIF) is the famous “blue box” specialty jeweler, but it’s also heavily tied to the economy. However, with a rebounding economy, is now a good time to invest in the jewelry company? The other big tailwind to the stock could be a potential buyout.

I’m like cat here, a no-name slob. We belong to nobody, and nobody belongs to us. We don’t even belong to each other. – –Holly Golightly, Breakfast At Tiffany’s

This quote may no longer apply to the famous specialty retailer, with Tiffany & Co. (NYSE:TIF) being a potential buyout candidate. Tiffany’s $9.37 billion enterprise value means the company could easily be snatched up by one of the major retailers.

Buyout potential

Bloomberg reported back in January that Tiffany & Co. (NYSE:TIF) might be on the M&A radar. The most talked about potential acquirers include global luxury conglomerates, namely LVMH. The acquirer would get a strong American brand, while also being able to expand Tiffany in Asia and Europe.
PPR, another possible candidate,  is reorganizing its focus on luxury, sports and lifestyle brands. The owner of the Gucci brand has said acquisitions will account for about 20% of its goal to boost sales to $32 billion by 2020, almost doubling from 2011.

Gamco Investors’ CIO, Howard Ward, has also noted that “sooner or later someone will make a run at Tiffany…there are some obvious foreign luxury brand companies that would be interested.”

Francesco Trapani, head LVMH’s watch and jewelry unit, noted that his company always has “a window open on M&A,” but won’t pay “stupid prices.” The question is, is Tiffany at a stupid price?
Key highlights

Tiffany & Co. (NYSE:TIF) actually trades in line with major peers on an EV/EBITDA basis at a mere 10.88 multiple. This compared to other major specialty retailers: Signet at 10.2 times, Movado Group at 10 times, LVMH at 9.9 times and Wesfarmers at 11.4 times.

Even with a 50% premium on Tiffany’s current valuation, an acquisition of Tiffany’s still wouldn’t be the largest deal in the industry, which was in Australia, when Wesfarmers Ltd. purchased Coles for $15.8 billion in 2007.
What’s also intriguing about Tiffany is its high-priced items. Among retailers, Tiffany generates some of the highest sales per square foot.
Source:  PCMag
Tiffany also has the most robust operating margin among its major peers:
Operating Margin
Tiffany 24%
Luxottica 11%
Signet 15%
Fossil Inc (NASDAQ:FOSL) 21%
The comps

Signet Jewelers Ltd. (NYSE:SIG) is a specialty retail jeweler in the United States and United Kingdom. Signet managed to post last quarter EPS of $2.12, compared to the $1.79 for the same quarter last year, on the back of 3.5% higher same-store sales and 12% higher total sales. The company sees 5%-7% higher same-store sales next quarter.

This positive performance is also a positive for Tiffany & Co. (NYSE:TIF), given that these are two of the only remaining major traditional specialty retail jewelers. Signet Jewelers Ltd. (NYSE:SIG) does have sales roughly $70 million greater than Tiffany, but Tiffany has a gross margin of nearly 58%, compared to Signet’s 38%.

Signet remains debt free and has a compelling valuation. Signet Jewelers Ltd. (NYSE:SIG) is trading at a forward P/E ratio of 12.6 and PEG ratio of 1.3 compared to 18.3 and 1.7 for Tiffany & Co. (NYSE:TIF).

Fossil Inc (NASDAQ:FOSL) is a global designer, marketer and distributor specializing in consumer fashion accessories. Fossil managed to post 2012 results that included earnings of $5.39 per share, which was up 16.9% from the year-ago earnings of $4.61 per share, but lagging management’s guidance of $5.42 to $5.45 per share.

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