Oh! Sparkly!

If you're not quite ready to write Jane Consumer's obituary, there are a number of retail stocks that are starting to look interesting right now. Valuations are discounting the worst case scenario for a lot of companies. Either Wall Street's earnings and growth projections aren't reflecting reality (and you have to give that some credence as a possibility... sometimes I think they live in Lake Woebegon where all their children are above average), or some of these stock prices are too low.

I'm not about to argue for a quick return to the consumer spending patterns of 2006 because, well, reality sucks. But let's think about companies that despite Wall Street's pessimism have managed to give us some positive earnings surprises (remember those?).

Come up with any yet?

I can wait.

Think international. Not international companies, they are really difficult for the average U.S. investor to buy unless they also trade here, but U.S. companies with large components of sales coming from overseas... preferrably from some of those red hot emerging markets.

Give up?

What about Tiffany (TIF)?

Consider the following:

• Earnings are beating consensus and going up: Last Friday Tiffany reported Q1 earnings of $0.50 - a full $0.10 above Street consensus. They took guidance for the full year up too.
• Their sales growth is all about international: over 60% of their stores are outside of the U.S. Even within the U.S., the New York Flagship had comp store sales up 16% when the rest of the stores in the country were down 4%. They attribute those strong sales to tourists. While Japan is still weak, other Asian countries were up 22%. Europe was up 30% not including the positive effects of foreign exchange.
• Strong management: management increased gross margin, bought back shares, and seems to have a good grasp of what the company needs. Activist shareholders might have helped prod on some of these things, but that's okay.

TIF is trading at 16.8x next year's earnings, which doesn't appear at first blush to be much of a bargain, especially with growth pegged at about 12% going forward. But when you consider that 16.8x is about 82% of the 5 year median forward P/E, that their Return on Capital has been steadily increasing, and the extent of their overseas sales including great locations (with more to come) in emerging markets... what's not to love?