Tiffany, Williams-Sonoma Rewarded for Poor Sales

Last Updated Sep 1, 2009 4:15 PM EDT

We're seeing a strange trend in the retail industry right now. With the exception of certain discount chains, companies' sales are plunging in nearly all categories, but many of their stock prices continue to go in the opposite direction.

Take the case of Tiffany & Co. The jewelry retailer recently reported its second-quarter earnings, and its sales figures were brutally low, with same-store sales dropping 27 percent year over year at U.S. locations, while net sales fell 23 percent.

Despite that, Tiffany's stock, which closed Aug. 31 at just over $36 per share, is more than double what it was in March. Many analysts are singing the company's praises, saying that when the recession is over, it will succeed due to closures by competitors and the retailer's varied price range. "Things are trending in the right direction," Daniela Nedialkova, an analyst with Atlantic Equities, told Bloomberg.

But is a company with skydiving sales really going in the right direction? Tiffany's net earnings were better than expected, but they still fell to $56.7 million in the second quarter from $82.6 million during the same period a year ago. As Wall Street Journal writer Paul Vigna pointed out: "With the stock price up so sharply, Tiffany may have to move a lot of little blue boxes to satisfy investors."

Williams-Sonoma is another retailer that saw its stock price shoot up, with shares on Aug. 31 hovering around the $19 range even though its 52-week low is $4.35, and same-store sales fell 15 percent during its second quarter. The company's net income was a paltry $399,000, down from $18.4 million during the same time period a year ago.

Everyone knows that the stock market is an unpredictable place where perceived company values flutuate wildly. But to have a truly healthy retail industry, the fundamentals of some of these key companies really need to turn around.