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Signet Hits 52-Week Low on Soft Holiday Sales & Slashed View

Zacks Equity Research

Shares of Signet Jewelers Limited SIG touched a 52-week low of $24.41, before closing the session a tad higher at $25.41 on Jan 18. Investors seem to be losing confidence in the company, owing to dismal holiday sales numbers released on Jan 17. The unimpressive holiday outcome also led management to trim sales and earnings view.

Moreover, the company posted a dismal bottom-line performance for third-quarter fiscal 2019. Signet has also been grappling with weakness in its international business. Clearly, these downsides have hurt investors’ confidence. In fact, shares of this Hamilton, Bermuda-based retailer of diamond jewellery have lost 54.5% in a year’s time, significantly underperforming the industry’s decline of 25%. That said, let’s take a closer look at the aspects impacting the company’s performance.

What’s Hurting the Stock?

Signet’s total sales for the nine-week period ended Jan 5, 2019, decreased 2.5% to $1,835.4 million, while same store sales fell 1.3%. The dismal results compelled the company to lower view for fourth quarter and fiscal 2019. Management stated that a decline in sales of legacy collections, aggressive promotional environment and waning traffic during important gifting weeks of December were the primary reasons behind lower-than-expected results. Even the company’s new merchandise assortment, digital marketing and omni-channel efforts failed to deliver desired results.

Signet now expects fourth-quarter fiscal 2019 same store sales to decline 1.6-2.5% compared with previous forecast of down 1.5% to up 1.0%. Management now projects adjusted earnings between $3.77 and $3.92 per share for the quarter compared with $4.35-$4.59 anticipated earlier. 

For the fiscal year, same store sales are now expected to be flat compared with the prior estimate of flat to up 1%. Adjusted earnings are projected to be $3.53-$3.69 per share compared with the earlier view of $4.15-$4.40. Management now expects capital expenditures between $165 million and $175 million compared with the prior guidance of $165-$185 million.

Apart from this, the company witnessed adjusted operating loss of $38.9 million in the third quarter of fiscal 2019, against operating income of $5.5 million in the year-ago quarter. We note that operating loss in third quarter primarily stemmed from the outsourcing of credit. Other factors causing such a decline includes higher labor and advertising costs. Moreover, these costs led to an increase in SG&A expenses in the third quarter. Persistence of such costs may hurt the company’s profitability.

Additionally, sluggish performance in the International unit is a concern. Notably, sales in the segment decreased 5.5% during third-quarter fiscal 2019 on a reported basis and fell 4.2% on a constant-currency basis. Comps in the segment declined 3.1% along with flat ATV and a transaction decline of 2.7%. Dismal comps performance mainly stemmed from soft-traffic trends and a tough consumer environment. Further, lower sales of diamond jewellery and fashion watches were partially offset by higher prestige watch sales.

Bottom Line

While factors like dismal holiday sales and soft performance in the International unit are weighing on the stock, we believe that this Zacks Rank #3 (Hold) company still holds much promise, given management’s prudent efforts to boost revenues and profitability. We note that Signet is concentrating on cost containment efforts, optimization of store base and management of inventory level. The company is also well on track with the ‘Signet Path to Brilliance’ plan, which is designed to augment savings, engage in customer-centric growth and bolster e-commerce. Such endeavors should help the company revive investors’ confidence. 

Stocks to Consider

Abercrombie & Fitch Company ANF has long-term earnings growth rate of 15.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DSW Inc. DSW has long-term earnings growth rate of 9% and a Zacks Rank #1.

J. Jill, Inc. JILL has long-term earnings growth rate of 10.3% and a Zacks Rank #1.

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