Amber Carrier
Professor Giorgio Mugno
Principles of Finance
Final Paper

Tiffany & Co

In 1837 Charles Lewis Tiffany and John B Young opened their first store in Manhattan, NY, Tiffany Young & Lewis. The business was backed with a mere $1000 from Tiffany’s father. The store initially sold stationary and fancy gifts, however they quickly expanded to sterling silver. In 1867 Tiffany & Young received international recognition when they were awarded the grand prize in silver craftsmanship. Tiffany & Co then opened their silver studio which became the first American school of design (Tiffany & Co). Tiffany & Co continued to grow and in 1878 they acquired the Tiffany Diamond:
“One of the world's largest and finest fancy yellow diamonds from the Kimberley diamond mines in South Africa. Under the guidance of Tiffany's eminent gemologist, Dr. George Frederick Kunz, the diamond was cut from 287.42 carats to 128.54 carats with 82 facets, which gave the stone its legendary fire and brilliance. Named the Tiffany Diamond, the stone became an exemplar of Tiffany craftsmanship” (Tiffany & Co).
Known for their diamonds, Tiffany and Co redesigned the classic beveled set engagement ring and introduced a new design which lifted the diamond above the band to accentuate the brilliantly cut diamonds. This setting, is now known as the “Tiffany setting.” Tiffany & Co has a long rich history in designing, manufacturing, and retailing jewelry and accessories. Their copyrighted “Tiffany blue” color is an iconic symbol of their brand. Today, Tiffany & Co is a leader in specialty retail and continues to thrive from their headquarters on Fifth Avenue.
Alessandro Bogliolo is the current CEO of Tiffany & Co. Bogliolo became CEO in 2017 and is compensated through salary, stocks, and bonuses. In 2017 Mr. Bogliolo received:
“$10,940,139 in total compensation. Of this total $1,346,375 was received as a salary, $2,118,150 was received as a bonus, $3,514,821 was received in stock options, $3,510,069 was awarded as stock and $450,724 came from other types of compensation. This information is according to proxy statements filed for the 2018 fiscal year.” (Salary.com)
Alessandro Bogliolo has a strong background in leading luxury retail companies. Prior to obtaining his position at Tiffany & Co, Mr. Bogliolo was CEO for Diesel from 2013 to 2017,
CEO for Sephora North America from 2012 to 2013 and Global CEO for Bulgari from 1996 to 2012. Bulgari is one of Tiffany & Co’s major competitors in the luxury retail industry, Mr. Bogliolo has a definite advantage from his significant past experience working for Bulgari.
Alongside Alessandro Bogliolo, Executive Vice President and CFO Mark J Erceg helps lead the company. Mr. Erceg is also compensated by salary, stocks, and bonuses. In 2018 Mark Erceg:
“made $4,146,741 in total compensation. Of this total $847,718 was received as a salary, $704,480 was received as a bonus, $1,063,969 was received in stock options, $1,062,510 was awarded as stock and $468,064 came from other types of compensation. This information is according to proxy statements filed for the 2018 fiscal year” (Salary.com).
Mark Erceg also has diverse background in both the financial and retail industries. He previously worked for Canadian Pacific Railway Limited, Proctor and Gamble, and Walmart. He has held positions as CFO, financial officer, and gained his most prominent global financial experience working for Proctor and Gamble as Vice President and General Manager of Global Investor Relations.
Pamela H Cloud is the current Senior VP Chief Merchandising Officer at Tiffany & Co. In 2018 Ms. Cloud earned:
“$2,208,269 in total compensation. Of this total $648,255 was received as a salary, $400,140 was received as a bonus, $276,651 was received in stock options, $829,153 was awarded as stock and $54,070 came from other types of compensation. This information is according to proxy statements filed for the 2018 fiscal year” (Salary.com).
Ms. Cloud began her career working for Bloomingdale’s from 1992 to 1994. She then began working for Tiffany & Co and has worked her way up to her current position over her 24 year career. She began working as a watch buyer and has worked as their forecasting director, category and demand management VP, senior VP of merchandising, and the senior VP of global category marketing (LinkedIn). She has held many positions which give her experience in different areas of the company.
Tiffany & Co is a large competitor in the luxury retail market and they have a solid presence in the global jewelry industry. They are a large company with a market cap of $11.66 billion and hold approximately 12.9% of the market (MacroTrends). From the beginning, Tiffany built their brand upon a reputation of luxury and fine craftsmanship. “Tiffany’s brand is worth a lot. People are willing to pay hundreds or even thousands of dollars more for a Tiffany product than they would for an equivalent silver product without a Tiffany logo” (Agrawal). A Tiffany product is considered valuable because the Tiffany name implies high quality and fine design.
It was interesting to examine Tiffany & Co’s 10-K Annual Report which I found on their website. I first looked at Tiffany & Co’s firm liquidity by calculating their current ratio. To determine a firm’s current ratio their current assets are divided by their current liabilities. I calculated the current ratio for Tiffany & Co for both fiscal years ending in 2018 and 2019:
2018
3983.3 million / 724.8million = 5.496
2019
3759.5 million / 718.10 million = 5.235
This current ratio is considered high for the retail industry which may indicate they are not managing their working capital efficiently.
The quick ratio, also known as the acid test ratio is a more accurate liquidity ratio. To determine the acid test ratio, the cash and account receivables are divided by the current assets. The acid test ratios for Tiffany & Co fiscal years ending in 2018 and 2019 are:
2018
970.7 million + 231.2 million / 724.8 million = 1.66
2019
792.6 million + 245.4 million / 718.1 million = 1.44
The results of the acid test ratio are closer than the industry norm.
Other formulas include the days in receivables, the accounts receivable turnover rate, and the inventory turnover. To calculate the days in receivables, the accounts receivable is divided by the annual credit sales/365 days. Tiffany & Co had a days in receivables of approximately 15 days. Tiffany & Co’s accounts receivable turnover rates was approximately 18.64 as of January 31, 2019. The inventory turnover is calculated by dividing the cost of goods sold by the inventory. As of 2019, Tiffany & Co has an inventory turn over rate of approximately 67 percent. These calculations indicate that Tiffany & Co is operating efficiently.
I then looked into Tiffany & Co’s operating profitability. Three calculations used to determine operating profitability are operating return on assets, operating profit margin, and total asset turnover. These calculations from Tiffany & Co’s most recent financial documents for the fiscal year ending in January 2019 are as follows:
Operating Return on Assets = Operating Profits/Total Assets 743.5m/3759.5m = 20%
Operating Profit Margin =Operating Profits/Sales 723.5m/4442.1m = 17%
Total Asset Turnover =Sales/Total Assets 4442.1m/5333m = .83
To compare these calculations to the industry, I used CSIMarket’s website to research the industry norms. According to CSIMarket, the average operating profit margin for the industry is 40%; however is 5.58% for the sector. The luxury sector is more relevant for comparing Tiffany & Co because many lower end retailers make up the entire retail industry. Tiffany & Co has a much higher total assets amount because of their high end luxury products. Tiffany & Co’s total asset turnover of 0.83 indicated that for every $1.00 in total assets, $0.83 sales dollars are made.
The next area of the company to assess was their financing decisions. I calculated Tiffany & Co’s debt ratio and return on equity from their financial reports for the fiscal year ending January 31, 2019. These were calculated as:
Debt Ratio = Total Debt / Total Assets (113.4 + 883.4)/5333 = 19%
Return on Equity = Net Income / Total Common Equity 586.4/3130.9 = 0.18729
Tiffany & Co has a very low debt ratio because their assets are so high valued. 19% of their assets are financed with debt. According to CSIMarket.com the industry average debt ratio is 59% and the sector’s average is 122%. As you can see, Tiffany & Co has a much lower debt ratio compared to their competitors in the industry. The return on equity determines how much profit is generated from each dollar of common shareholder’s equity. As you can see only approximately $0.19 is generated for each dollar of Tiffany & Co’s shareholder equity. Tiffany & Co’s return on equity is lower than the industry average of $6.69 and the sector average of $23.81. (CSIMarket)
The two market value ratios, the Price/Earnings ratio and the Price/Book ratios were calculated as follows using the numbers from the fiscal year ending January 31, 2019:
Price/Earnings Ratio Market price per share/ earnings per share 96.02/4.77 = 20.12
Price/Book Ratio Market price per share/equity book value per share 96.02/25.14 = 3.8

According to CSI market, Tiffany & Co ranks number 3 in the industry for earnings per share and ranks number 4 in the industry for their price book ratio. These rankings indicate that Tiffany & Co is certainly one of the major competitors in the industry. Their major competitors include large global companies such as Signet Jewelers Ltd, Cartier, Movado, and Michael Kors.
Tiffany & Co are issuing an issue of bonds that mature in 2024 and an issue of bonds that mature in 2044. These bonds are coupon bonds and pay a coupon rate to the investor. The bonds that mature in 2024 total $246,750,000, have a $1000 par value, and pay 3.8% two times per year. The bond that mature in 2044 total $299,970,000, have a $1000 par value, and pay 4.9% two times per year. (CBonds). I feel Tiffany & Co is borrowing this money because they plan to evolve and grow their profits. Alessandro Bogliolo and Reed Krakoff have big plans to update the brand and completely remodel the Fifth Avenue Manhattan location:
“This year, Tiffany's flagship location got a major upgrade, including a newly renovated fourth floor and the highly Instagrammable Blue Box Cafe. Krakoff called the changes "a window into the new Tiffany," in a statement revealing the renovation.
Over the summer, the company announced more changes to the store: a complete renovation of the 10-story building. Construction is set to begin in the spring and is expected to be done by the end of 2021” (Wiener-Bronner)
Adding a branded café to the location and completing remodeling to update the location while staying true to the company’s heritage is a promising plan to increase revenue.
Tiffany & Co is publicly traded on the New York Stock Exchange as the ticker symbol “TIF”. Their initial public offering was May 5, 1987; the offering price was $23.00/share (Tiffany & Co). Tiffany and Co is included in the S&P 500 Index. Tiffany and Co’s stock has been split four times over the course of it’s life; a three for two split in 1989, a two for one split in 1996, a two for one split in 1999, and another two for one split in 2000. The history of Tiffany & Co’s stock is pictured below:

Over the past ten years, Tiffany & Co’s stock price has fluctuated, it has had years of significant growth and has has three years where the price has dropped. There seems to be a patter of loss after years of significant gain. Throughout the stocks lifespan, the price has increased with the growth of the business. Those who purchased when the stock price was fairly low have earned profits. Today’s closing market price of Tiffany & Co’s stock was $96.02. The stock currently pays a dividend of $0.55 per share quarterly (Investor.tiffany.com). At this rate, one share of stock pays $2.20 annually. $2.20 divided by the current market price of $96.02 means the dividend percentage is approximately 2.29%. Tiffany and Co currently has 121,419,000 shares outstanding (NASDAQ). The current value of the firm’s common stock at a current market price of $96, 02 is $11,658,652,380; approximately $11.66 billion.
From the research and financial calculations I have done, I predict Tiffany & Co’s stock will continue to increase in the immediate future. In the intermediate future, the stock will probably fluctuate. If it dropped significantly, it would be a great time to buy because I predict there will still be overall long-term growth for Tiffany & Co. As a luxury brand, Tiffany & Co has grown significantly; in 2017 they hired a new CEO and have since hired designed Reed Krakoff as their chief artistic director. Reed Krakoff has a history with luxury brands and has worked with top brands such as Coach. Both men have big plans to revitalize the business and grow the company to attract younger buyers while staying true to Tiffany’s timeless heritage. I believe there is growth possible still in Tiffany’s stocks and if the stock price dropped, I would consider investing, however it is currently pretty high.
Although I have learned a lot about investing from my business courses at Tunxis, taking a risk with stocks would not be my first choice. I’ve never really invested, so my ideal financial portfolio would be 60% cash, 20% real estate and 20% bonds. I would like to start small and the idea of investing in real estate is desirable because I’d like to own vacation properties. I would prefer to keep the cash portion the majority of my portfolio. I would choose to purchase bonds over stocks because right now, I am not in the financial position to take high financial risks. As my portfolio grew, stocks would become an interest because greater risk can offer a greater reward.
This course has given me the additional knowledge to consider investing and my financial future. The MarketWatch game provided a simulation of a real life stock market and taught me that your portfolio can change overnight. In the beginning of the course, I was in second place; however I had dropped to the bottom as my investments took a negative turn towards the end. Looking at a firms financial health, profitability, and growth potential are all significant aspects to investing. I invested with too much risk and it certainly didn’t pay off.

Works Cited

Agrawal, AJ. “How Tiffany & Co. Built A Marketing Empire.” Forbes, Forbes Magazine, 9 Aug. 2016, www.forbes.com/sites/ajagrawal/2016/01/04/how-tiffany-and-co-built-a-marketing-empire/#213fa9791c30.
Bloomberg. “Can the Man Who Made Coach Remake Tiffany?” The Business of Fashion, The Business of Fashion, 1 May 2018, www.businessoffashion.com/articles/news-analysis/can-the-man-who-made-coach-remake-tiffany.
CBonds. “International Bonds: Tiffany & Co, 3.8% 1oct2024, USD (US886546AB67, 886546AB6).” Cbonds.Info, 2019, cbonds.com/emissions/issue/145237.
CBonds. “International Bonds: Tiffany & Co, 4.9% 1oct2044, USD (USU88654AC94, U88654AC9).” Cbonds.Info, 2019, cbonds.com/emissions/issue/101453.
“Compensation Information for Alessandro Bogliolo , Chief Executive Officer of TIFFANY & CO.” Salary.com, www1.salary.com/Alessandro-Bogliolo-Salary-Bonus-Stock-Options-for-TIFFANY-CO.html.
“Compensation Information for Mark J. Erceg , Executive Vice President - Chief Financial Officer of TIFFANY & CO.” Salary.com, 2019, www1.salary.com/Mark-J-Erceg-Salary-Bonus-Stock-Options-for-TIFFANY-CO.html.
“Executive Profile Mark J Erceg.” Bloomberg.com, Bloomberg, 2019, www.bloomberg.com/research/stocks/people/person.asp?personId=106781681&privcapId=35576.
“Financial Information.” Tiffany & Co., 2019, investor.tiffany.com/financial-information.
“Tiffany Market Cap 2006-2019 | TIF.” Macrotrends, 2019, www.macrotrends.net/stocks/charts/TIF/tiffany/market-cap.
“TIF's Competition by Segment and Its Market Share.” CSIMarket, 2019, csimarket.com/stocks/competitionSEG2.php?code=TIF.
Wiener-Bronner, Danielle. “Tiffany Has Always Been Classy. These Guys Are Making It Cool.” CNN, Cable News Network, 10 Mar. 2019, www.cnn.com/2019/03/10/business/tiffany-ceo-alessandro-bogliolo-reed-krakoff-profile/index.html.