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[video] Tiffany Indicates Higher-End Strength

Stocks in this article: TIF WMT

In stark contrast to Tiffany's results, the nation's largest retailer reported below analyst estimates on the top line, negative same-store comparables, and guidance below analyst expectations. On the top line, revenues increased 1.7% to $115.69 billion, below the Street's view of $116.81 billion. U.S. same-store sales at Wal-Mart (WMT) dropped by 0.3%, missing the expectation of flat sales. Wal-Mart issued fourth-quarter projections of $1.60 to $1.70 in earnings per share, a midpoint of $1.65, below analyst estimates of $1.69 per share. In addition, for the full year, Wal-Mart narrowed its estimates to $5.11 to $5.21 per share, below the $5.20 estimate.

Tiffany caters to the higher end as its products carry hefty price tags, to say the least. Strong results from Tiffany in contrast to weak results from a low-end consumer favorite, like Wal-Mart, showcases the division in economic strength this holiday season. Strong equity markets and real estate prices have helped the higher-end consumers bolster spending for much of the year.

The S&P 500 is higher by nearly 28% over the last year. Typically, the lower- and middle-tier consumers carry far less of their assets in the global equity markets. Moreover, housing prices have soared double digits in some key markets. Case-Shiller reported on Tuesday that 12 cities saw double-digit annual returns in home value. Higher home prices equate to higher confidence and spending out of those who own them. Higher home ownership out of the higher income tiers points again to higher spending in relation to the lower-tier classes.

Higher payroll taxes, lower consumer confidence, and slow job growth in general weaken the prospects for lower-end retail. In November, consumer confidence dropped to the lowest level in seven months as a result of these concerns. On Tuesday, the Conference Board announced consumer confidence dropped to 70.4, from 72.4 in October.

In my eyes everything points to a better holiday season performance for the higher end market, and poor performance from the lower-end retailers. Positive asset appreciation has helped the higher-tier consumers to a greater degree than the lower class. Headwinds including payroll taxes, confidence, and slow job growth should continue to weigh on the minds and wallets of the lower-tier consumer. Lastly, tough competition within the lower end space could lead to greater than anticipated discounts and affect the margins of those within the space. Following Black Friday, we will get an early indication of the strength of the American consumer in particular. At the time of this writing, shares of Tiffany were higher by a remarkable 8.6% to $88 per share.

Nate Matherson is currently a student at the University of Delaware where he is pursing degrees in Finance and Economics. Over the last year, Nate has actively produced investment analysis and opinion for a number of financial media companies including TheStreet.com. Upon graduation in 2016, Nate would like work within asset management.
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