Tiffany's Manager Turnover Is Disturbing

Following the CEO departure, we are not adjusting our moat rating or fair value estimate for

On Feb. 5, Tiffany announced the immediate departure of its CEO Frederic Cumenal after less than two years in the role. Although the board sides with his strategic direction, they were disappointed by the execution and poor recent financial results. This comes on top of a change in creative leadership earlier this year (with Reed Krakoff taking a newly established Chief Artistic Director role and jewellery design director Francesca Amfitheatroff leaving the company).

We don’t expect disruption, as the CEO position will be temporarily filled by chairman of the board and former longtime CEO M. Kowalski. The strategic direction--a focus on introducing new products, targeted marketing investments, optimising existing stores, and cost control--will remain the same until a permanent replacement is found.

We acknowledge that Tiffany’s growth in the past two years has trailed that of some European peers, with 2% constant-currency growth in 2015 and an estimated 3% decline in 2016, versus 8% and 5% respective constant-currency growth at the LVMH watch and jewellery division and 10% and estimated flat to low-single-digit growth at Richemont’s jewellery business. However, some of the weakness is explained by currency movements and the resulting changes in destination for travelling consumers, which are outside of management control. On top of frequent CFO changes, we still regard high management turnover as somewhat disturbing. We are concerned that the short tenure of executives is affecting management’s ability to focus on managing the business for the long term.

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