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Bear of the Day: Signet Jewelers (SIG)

Madeleine Johnson

Signet Jewelers Ltd. (SIG) is the world’s largest diamond jewelry retailer, and operates under the brand names Kay Jewelers, Zales, and Jared The Galleria of Jewelry, among others. The company has over 3,500 stores primarily in the U.S., the U.K., Ireland, and the Channel Islands.

In the past six months, shares of Signet have fallen nearly 60%. Disappointing holiday sales and a cut to its Q4 and fiscal 2019 guidance hurt the stock, especially after a brutal 40% decline in December, and investors have dumped their positions.

Weak Holiday Sales

Last December saw the company report mixed results. Signet reported an adjusted loss of $1.06 per share, which was narrower than the Zacks Consensus Estimate of a loss of $1.08. Revenues also beat our consensus estimate and same-store sales rose 1.6% year-over-year.

But, the big year-over-year bottom line decline coupled with lowered full-year guidance left the market and investors underwhelmed.

On top of this report came weaker-than-expected holiday sales a few weeks ago. Total sales for the nine-week period fell 2.5% and same-store sales decreased 1.3%; sales in its North America and International segments fell as well, down 2.1% and 11.7%, respectively.

As a result, guidance for the current year and quarter was trimmed even more.

Signet now expects same-store sales to be flat compared to previous guidance of flat to up 1%. Adjusted earnings are projected to fall in the range of $3.53-$3.69 per share compared to $4.15-$4.40 per share. Total sales will now be between $6.24 billion to $6.26 billion compared to $6.26 billion to $6.31 billion.

CEO Virginia Drosos commented “…the competitive promotional environment we saw early in the season intensified in December and, despite our increased promotional investments, we experienced reduced traffic during key December gifting weeks. Combined with higher than expected credit costs, these factors negatively impacted our profitability.”

Estimates are Falling

Signet Jewelers Limited Price and Consensus

Signet Jewelers Limited Price and Consensus | Signet Jewelers Limited Quote

It didn’t take long for analysts to lower their estimates for fiscal 2019, and five have cut their earnings outlook in the last 60 days; our consensus has fallen 71 cents, down from $4.22 to $3.51 per share, and earnings could see year-over-year decline of 46%.

The consensus estimate has fallen for next fiscal year, too, down well over one dollar from $4.42 to $3.19 per share. Four analysts have also cut their estimates for this time period as well.

SIG is now Zacks Rank #5 (Strong Sell).

Despite these lackluster numbers, Signet hopes to improve some of its key business segments—marketing, product assortment, promotions, services, and e-commerce solutions—through its ongoing “Path to Brilliance” initiative. The company reports its Q4 results mid-March, so we’ll see what lies ahead for this jewelry giant soon.

If you’re an investor looking for a luxury retail pick to add to your portfolio, you may want to consider RH (RH). This high-end home and furniture retailer is a #1 (Strong Buy) on the Zacks Rank, and currently expects over 175% earnings growth for the year.

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