To rewind, shares of TIF tanked in Nov. and Dec., dropping by as much as 35%. During this time, macroeconomic concerns were mounting, especially regarding China's economy as tariffs and trade tensions were cutting into growth. With the Asia-Pacific region accounting for more than a quarter of its overall business, TIF is especially sensitive to changes in the economic conditions there -- hence why shares experienced an out-sized drop.
These concerns were validated on Jan. 18 when the company lowered its FY18 EPS guidance, expecting earnings to come in at the low end of its $4.65-$4.80 projection vs. the $4.77 consensus. TIF also reported that worldwide net holiday sales fell by 1% and that comps declined by 2%.
In that press release, management cited a slow-down in Chinese tourism as a primary cause to the shortfall, along with a softening in demand from local customers in the Americas market. Furthermore, the company believes that its customers were more influenced by macroeconomic uncertainties, in particular tariffs and trade disputes, than expected.
With that backdrop in mind, it was already expected that its results in the Americas and Asia Pacific regions would be weaker in Q4. Indeed, that was the case as comps were down 1% in Americas and down 3% on APAC, on a GAAP basis. Management reiterated during the call this morning that results were impacted by those aforementioned external events and uncertainties.
The good news, however, is that TIF reaffirmed its FY19 guidance, indicating that it sees stabilization in its markets. What's especially encouraging is that it reaffirmed its outlook, despite the fact that there are a few non-repeating items included in that guidance. Specifically, there will be some incremental SG&A expense related to the remodel of its NYC flagship store totaling about $0.10-$0.15 per share.
The company’s 2019 forecast accounts for the fact that it no longer will be able to recognize an $8 mln per year deferred gain on previous sale leasebacks due to a new accounting standard. Lastly, its first half earnings will be negatively impacted by investment spending that began in 2Q18, that has not yet fully annualized.
Overall, TIF is expecting its results to gradually improve throughout the year, which is primarily what is driving the stock higher this morning. It sees the aforementioned macro-related pressures easing, and, as new products are launched, as digital becomes a more prominent component of its sales distribution, and as it adds new stores to its base (notably including China), it expects sales growth to strengthen and earnings growth to resume.