In the last six months shares of Tiffany (TIF - Get Report) are up 33%. But the stock is down 5.3% in premarket trading on weak holiday sales, in large part thanks to a stunning 14% sales decline at the company's Fifth Avenue flagship store in New York City due to traffic disruptions from the nearby Trump Tower. 

What should investors do?

After hitting bottom in July, Tiffany beat second-quarter estimates in August and the stock hasn't looked back. Tiffany reported second-quarter results on Aug. 25 and beat the consensus estimate by 12 cents per share. Revenue fell 5.9% to $931.6 million. On a constant currency basis, worldwide net sales fell 6% and comparable store sales declined 9%.

While same-store sales were weaker than expected, the earnings beat was driven by a 210 basis point increase in gross margins to 61.9% and lower expenses. Tiffany has been shifting its mix towards higher-margin products such as fashion jewelry. The company has also been expanding the number of offerings below $500 in the silver jewelry department. Management will turn its focus to fixing its gold collection later this year. Statement jewelry, which contains Tiffany's highest-priced offerings, continues to be weak. In fiscal 2017, the company will introduce a home and gift accessory collection.

At the end of November, Tiffany beat third-quarter earnings estimates by 9 cents per share. Revenue rose 1.2% to $949 million and the same-store sales decline moderated. Same-store sales were down only 2% vs. 9% in the second quarter. Gross margin continued to improve as well, rising 80 basis points year over year to 61%. Fine jewelry sales jumped 5%. Engagement jewelry sales were flat, and statement jewelry was down 7%.

For the full-year, management now sees earnings falling by no more than a mid-single percentage. Previously, it saw an earnings decline of mid-single digits. Worldwide sales continue to be seen declining by a mid-single digit percentage. 

Tiffany recently hired a new Chief Financial Officer, Mark Erceg, who told investors his focus would be on reducing expenses, especially selling, general and administrative expenses. While gross margins are rising, Tiffany needs a mid-single-digit same-store sales increase to leverage its fixed expenses. Same-store sales were down 7% in Europe, 7% in Asia/Pacific and down 2% in the Americas, so getting fixed costs down is crucial if Tiffany is going to generate any earnings growth while the top line is stagnant.

Despite weak store traffic, especially at the flagship store in New York -- which is surrounded by police and secret service protection for the president-elect -- investors seem to believe Tiffany & Co. can keep sparkling.

Analysts think fiscal 2017 sales will decline 2.4%, but rise 3% next year. Because of lower expenses and higher gross margins, analysts see earnings growing 6.4% from $3.73 a share to $3.97. Tiffany reports fourth-quarter and year-end fiscal 2017 earnings on March 16.

Tiffany typically trades on a price-to-earnings multiple between 19 and 20 times forward analyst estimates. The stock is basically at those levels right now.

For the stock to go much higher, investors have to bet the company can start producing a positive same-store sales figure, lower its expenses and keep gross margins growing. I think upward estimate revisions like we've seen in the last two quarters will keep Tiffany's sparkling.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.