Shares of Signet Jewelers Limited SIG plunged nearly 16% during the trading session on Jun 9, following soft first-quarter fiscal 2021 results. Although the company reported narrower-than-expected loss per share in the quarter, sales lagged the Zacks Consensus Estimate, breaking the beat trend of nine straight quarters. Also, both the top and the bottom line fell year over year. Moreover, the company witnessed softness in same-store sales, which plunged 38.9% year over year. Margins were also dismal in the reported quarter. Management did not provide any guidance for the fiscal year owing to persistent uncertainties.
Nevertheless, management accelerated the company’s transformation into a channel-agnostic retailer over the last 10 weeks. This enables store staffs to cater to customers from home via technology such as chat, video, social media and virtual by-appointment private consultations. Impressively, its jewelry consultants have connected with more than 20 million customers and conducted above 100,000 virtual consultations since it temporarily shut its North American outlets effective Mar 23. Going forward, Signet will continue to enhance virtual consulting offerings. Nearly six weeks ago, the company reopened almost 1,100 outlets across the states of Arizona, North Carolina, Ohio, California Georgia, Virginia, Texas and Florida. As of Jun 2, more than three-quarters of Signet's reopened stores were opened to the public, while the others were opened solely to employees. In April, management rolled out Curbside Concierge service across majority of its reopened outlets.
Over the past three months, Signet’s shares have plunged 15.6% compared with the industry’s 0.3% decline.
Q1 in Detail
The company reported adjusted loss of $1.59 per share, narrower than the Zacks Consensus Estimate of a loss of $2.45. However, the figure compared unfavorably with adjusted earnings of 8 cents a share reported in the year-ago quarter.
Signet Jewelers Limited Price, Consensus and EPS Surprise
Signet Jewelers Limited price-consensus-eps-surprise-chart | Signet Jewelers Limited Quote
This jewelry retailer generated total sales of $852.1 million that lagged the Zacks Consensus Estimate of $925 million. Also, the top line declined 40.5% year over year and 40.2% on a constant-currency (cc) basis.
Meanwhile, e-commerce sales grew 6.7% from the prior-year quarter to $164.7 million. On excluding the temporary closure of the James Allen distribution center, the metric increased 18.2%. With respect to COVID-19, the company has accelerated its transformation to a digital omni-channel retailer and has pivoted temporarily to e-commerce-only operations while physical stores were shut. Impressively, the company’s virtual selling endeavors led to increasing consumer demand, witnessing e-commerce improvement of 55% in April, excluding the James Allen's New York distribution center impact. This momentum continued into May.
We note that Signet is boosting the shopping experience online with advanced virtual and digitally native experiences as well as in-store with store-in-stores and outlets housing several banners.
Adjusted gross profit plunged 59.2% to $203.8 million and adjusted gross margin contracted significantly from 34.9% to 23.9% owing to lower sales resulting from the pandemic.
However, selling, general & administrative expenses fell 24.6% to $358.4 million on reduced labor costs stemming from employee furloughs, temporary pay reductions, decreased advertising expenses and lower overheads. Further, the company reported adjusted operating loss of $142.5 million against operating income of $24.2 million recorded in the year-ago quarter.
Sales at the North America segment declined 39.9% on a reported basis to $781.1 million. Further, same-store sales fell 39% from a year ago.
Moreover, the segment’s e-commerce sales grew 4.3%, while brick-and-mortar same-store sales tumbled 44.6%. On excluding the impact of the James Allen distribution center, e-commerce improved 15.8%. Its average transaction value ("ATV") dropped 6.5%, while the number of transactions declined 34.5%. Meanwhile, North America payment plan participation rate, with both credit and leasing sales, came in at 43.4% in fiscal first quarter, down from 50% in the year-ago quarter.
Sales at the International segment declined 41.8% on a reported basis to $64.9 million. Same-store sales at the segment dropped 37.5% year over year. Further, ATV edged up 2.7%, while number of transactions fell 41.2%. Meanwhile, e-commerce sales rose 37.2%, while brick-and-mortar same-store sales decrease of 46.6%.
Signet — which shares space with Tiffany TIF in the industry — ended the quarter with cash and cash equivalents of $1,066.6 million, accounts receivable of $29.8 million and inventories of $2,392.2 million. Long-term debt was $1,336 million and total shareholders’ equity was $990.5 million at the end of the quarter.
During first-quarter fiscal 2021, this Zacks Rank #3 (Hold) company used net cash of $7.6 million in operating activities. It had negative free cash flow of $15.3 million at the end of the quarter. Moreover, management anticipates reducing capital expenditures by nearly 50% compared to prior year and will prioritize plans supporting digital efforts.
Furthermore, the company’s dividend will remain suspended till it has better market clarity. However, management has elected to pay the August preferred dividend in kind.
Path to Brilliance Update
Owing to COVID-19 and the consequently evolving retail backdrop, Signet is accelerating its Path to Brilliance initiatives. It will continue providing customers with expertise and merchandise selection. Also, it has been optimizing virtual footprint via enhancing site capabilities. Moreover, the company is on track to surpass the original transformation goal of $200-$225 million cost savings and has accomplished $185-million net cost savings over the first two years of Path to Brilliance. Management has also identified additional structural cost savings of more than $100 million for fiscal 2021.
In wake of the optimization of its physical footprint, management will not reopen at least 150 North America stores and 80 U.K. outlets. It also remains committed to shutting a minimum of 150 more stores by fiscal 2021-end. In addition, the company has been making discussions with landlords, including rent deferrals and abatements and store-level analysis.
As of May 2, 2020, Signet had 3,172 stores. In the fiscal first quarter, store count declined by 36 and square feet of selling space contracted 1%.
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