Tiffany & Co. (NYSE:TIF) Robust Sales Growth to Shrug LVMH Moet Hennessy-Louis Vuitton Blow

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Tiffany is yet again on the spotlight after an impressive 2020 amid a challenging environment. After powering to one-year highs, the stock is struggling to hang on to gains as a fallout with LVMH Moet Hennessy-Louis Vuitton threatens to scuttle the company's long term plans.

Tiffany Outlook

The jewelry chain returned to profitability in the second-quarter as encouraging trends in mainland China and global e-commerce spree helped drive sales after the Q1 fiasco. However, the honeymoon in the market appears to have come to an abrupt end, following a 10% plunge as investors reacted to a breakdown in a $16 billion takeover bid.

The stock had powered to record highs late last year after the French conglomerate LVMH Moet Hennessy-Louis Vuitton announced plans to acquire the iconic jeweler for $16 billion. In the aftermath of the COVID-19 pandemic, the French company appears to have developed cold feet, especially on the U.S retailer reporting a 36% slide in sales in Q1.

The announcement that LVMH will not close the deal has sent Tiffany shares slumping back to 2020 lows. The plunge comes hot on the heels of an extended consolidation as investors remained wary of why the merger took long.

A plunge to the $114 level should arouse concerns as it is close to a critical support level. A close below the $100 level would leave the stock vulnerable to further drops with bears looking to fill the gap opened as investors sent the stock higher on the announcement of the LVMH deal late last year.

What Does LVMH Do?

Together with its subsidiaries, Tiffany designs, manufacture, and distributes jewelry, among other items. Its product lineup is made up of engagement rings, wedding bands, among other jewelry collections such as watches, fragrances, and earrings.

Why Tiffany Imploded?

Tiffany $16 Billion takeover Fallout

Tiffany has seen its sentiments in the market turn sour on LVMH Moet Hennessy-Louis Vuitton, backing out on a proposed $16 billion takeover. In scrapping the deal, LVMH cited a French government request for a delay due to tariff threats by the U.S.

A Bitter fall out now looms, Tiffany having opted to seek redress in the courts. The U.S jeweler has already filed a lawsuit with the Delaware Chancery Court claiming that the French luxury brand intentionally breached an agreement to complete the $16 billion deal.

Tiffany appears to have the upper hand in the lawsuit as LVMH claims that U.S Tariffs had a hand on the termination of the deal are unlikely to hold. The French Luxury brand also faces allegations of failing to carry out obligations to obtain antitrust clearance from the European Commission.

The original agreement required LVMH to complete the acquisition of Tiffany on August 24, 2020. However, that did not happen as the company was yet to pursue regulatory approval in key markets of Taiwan, Mexico, and Europe.

The developments might as well have been early warning signs that the French Luxury brand was not ready to complete its obligations as part of the $16 billion agreement. However, the two had already secured most approvals to complete the deal, key among them being from the Securities and Exchange Commission in the U.S.

Tiffany's Robust Digital Sales

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Amid the LVMH Moet Hennessy-Louis Vuitton $16 billion blow, the Tiffany brand remains stronger than ever. While the company did take a significant hit in the aftermath of store closures attributed to the covid-19 pandemic, businesses has picked up immensely in recent months. Tiffany's e-commerce business grew by more than 120% in the second-quarter as sales in Mainland China increased by 80%.

Strong demand from mainland China compounded by an increase in e-commerce activity saw the U.S retailer bounce back to profitability as depicted by solid second-quarter financial results. Second-quarter sales decline decelerated, attributed to the opening of economies worldwide in the aftermath of the COVID-19 pandemic.

Q2 sales came in at $747.1 million from $1.05 billion reported a year earlier. While the 29% decline was a point of concern, it was a massive improvement compared to a 45% decline reported in the first quarter.

Tiffany's global sales trends have improved significantly since August, and the company looks set to finish the year on a high amid the uncertain environment fueled by the COVID-19 epidemic. The company continues to enjoy booming business in the Asia Pacific, with sales in the region increasing 17% in the recent quarter.

Bottom Line

While Tiffany has taken a significant hit in the aftermath of LVMH terminating the $16.2 billion takeover deal, the future remains bright. The U.S jeweler has bounced back from the COVID-19 shocks as depicted by robust sales in the recent quarter

Booming business supported by growing digital sales should allow the company to offset the LVMH disappointments going forward. Q2 earnings report affirms the brand's power and resilience expected to be a key driver of shareholders for many years to come.

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