Goodbye Mass, Hello Class

Nelson Peltz, the investor who has shaken up such big consumer companies as Heinz, Kraft, and Cadbury Schweppes, is turning his attention to a more elite company: Tiffany.

Peltz has increased his stake in Tiffany & Co. by 3.7 million shares, to 7.9 percent from 5.5 percent, according to a filing with the Securities and Exchange Commission.

Most of the buying by his funds took place after Tiffany disclosed last Friday that sales in the United States slumped during the holiday shopping season. Shares of the luxury jewelry chain fell 11 percent that day.

Investors' reactions were especially strong given that many see Tiffany's stumble, along with trouble at American Express, as signs that the economic slowdown is beginning to spread to high-end retail.

Is Peltz's apparent interest in Tiffany a sign that he believes the U.S. luxury market is heartier than Wall Street makes it out to be?

Perhaps, but his interest may be less of a broad statement about the sector than seeing value in Tiffany in particular.

The jeweler has less exposure to weakness in U.S. consumer spending than many in its sector because of its large international presence, where sales are expected to continue to growth at a good clip. More than 40 percent of its sales now come from abroad.

When Peltz first built a big stake in Tiffany, in February, he indicated that he was not looking to seek a board seat or wage a proxy fight as he has at other companies. Tiffany, at the time, said it was willing to listen to Peltz's ideas.

Peltz apparently still feels there is room for improvement at Tiffany. Brian Tunick, an analyst with J.P. Morgan, noted in December that though the company's management has been actively finding ways to improve profits, operating margins are still not at their peak.

Last month Tiffany announced an alliance with Swatch that will significantly increase their sales of watches; analysts see that as becoming a boom in a few years' time.

How much time will Peltz give Tiffany's management?

Liz Gunnison