As the coronavirus ravages consumer spending, one luxury S&P 500 stock is defying gravity.
Tiffany & Co. (NYSE: TIF) continues to trade close to its all-time highs even as Google search interest for engagement rings plunges to its lowest level in 13 years.
Due to coronavirus, Tiffany & Co. was among the first wave of U.S. businesses forced to close stores and make some rather dire earnings predictions for the rest of 2020.
Despite the initial selloff in the stock market, equities have rallied throughout April, even as almost 23 million American have found themselves unemployed. TIF was no exception.
It would make sense that the rough outlook for consumer spending might hit an S&P 500 stock like TIF the hardest, but this so far has not been the case.
Luxury French giant LMVH’s agreement to purchase Tiffany & Co. for around $135 a share is supporting the stock price, but with that deal pushed to October, there’s still a lot of uncertainty in the world of high-end fashion and jewelry.
What should be most worrying for Tiffany is that its most iconic business–engagement rings–is facing some of the lowest interest in over a decade.
According to Google Trends data, search interest in engagement rings is at its lowest level since 2007.
The reasons for this are likely to be many-fold, but all are centered around the uncertainty caused by coronavirus. Firstly, 23 million Americans have lost their jobs over the last few weeks, and this is not good for household spending.
Given that younger workers have been disproportionately affected by these layoffs, they have less money to spend and won’t feel comfortable doling out cash on a luxury. Plus, planning a wedding is almost impossible in the current environment.
Beyond the United States, Tiffany has embarked on an aggressive strategy in China to woo Millennials.
The world’s second-largest economy released retail sales data recently, and as ING’s Iris Pang reports, it made for rough reading:
Retail sales in March fell 15.8%YoY after falling 19.0%YoY in Jan-Feb. Retail sales show some improvement in terms of the variety of spending… But there was still a deep contraction in many retail sales items, e.g., clothing (-34.8%YoY), furniture (-22.7%YoY), and automobiles (-18.4%YoY). As mentioned earlier, as long as there are strict social distancing measures, the recovery of activity will be very slow, and this will be reflected in consumption.
All these facts make it very strange to see a stock like Tiffany & Co withstanding broader market volatility. Investors still expect the LMVH deal to go through without a hitch, but if no-one’s getting hitched, is that realistic?
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Last modified: April 18, 2020 2:36 PM UTC