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Signet (SIG) Up on Q2 Earnings Beat, Lifts FY22 Guidance

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Shares of Signet Jewelers Limited SIG rallied nearly 5.7% during the trading session on Sep 2, following robust second-quarter fiscal 2022 results. Markedly, the company’s top and bottom line beat the Zacks Consensus Estimate as well as improved year over year. This was the company’s fifth straight quarter of sales and earnings beat.

Performance in the quarter gained from strong same-store sales growth across regions. Its brick-and-mortar as well as e-commerce sales depicted growth. Management highlighted that the company’s Inspiring Brilliance strategy has been yielding and supporting market share growth. Moreover, the company’s banner value propositions, product newness, marketing efforts and connected commerce strategy have been yielding.

The company continues to focus on its growth strategies, including boosting product offerings, strengthening digital capabilities and expanding marketing channels. It is also focusing on enhancing shareholders wealth.

The company raised its fiscal 2022 expectations and also provided its view for the third quarter, backed by continued expectations of business growth. However, management remains cautious regarding the adverse impacts of the pandemic.

In the past three months, shares of this Zacks Rank #2 (Buy) company have gained 40.5% compared with the industry’s rise of 31%.

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Zacks Investment Research

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Quarter in Detail

The jewelry retailer reported adjusted earnings of $3.57 per share, which beat the Zacks Consensus Estimate of $1.61. The bottom line improved significantly from a loss of $1.13 in the year-ago quarter.

The company generated total sales of $1,788.1 million that surpassed the Zacks Consensus Estimate of $1,637 million. The top line also increased 101.4% year over year. The company gained from higher conversion and average transaction values as well as Connected Commerce capabilities despite lower foot traffic. Total sales reflect an improvement of 31.1% from second-quarter fiscal 2020 levels.

Total same-store sales surged 97.4% year on year and 38.1% from second-quarter fiscal 2020.

E-commerce sales amounted to $336.2 million that increased 24.5% from the prior-year quarter’s level. The metric improved 114.3% from second-quarter fiscal 2020. The company’s brick-and-mortar same-store sales were up 130.8% year on year and 27.5% from second-quarter fiscal 2020.

Signet Jewelers Limited Price, Consensus and EPS Surprise

Signet Jewelers Limited Price, Consensus and EPS Surprise
Signet Jewelers Limited Price, Consensus and EPS Surprise

Signet Jewelers Limited price-consensus-eps-surprise-chart | Signet Jewelers Limited Quote

A Sneak Peek Into Margins

Gross profit in the reported quarter amounted to $717.6 million, up significantly from $224.3 million in the year-ago quarter, and $458.7 million from second-quarter fiscal 2020. Gross margin came in at 40.1%, which expanded 1,480 basis points (bps) year on year and 650 bps from second-quarter fiscal 2020. The metric gained from leveraging of fixed costs like occupancy as well as real estate optimization and merchandise strategies.

Selling, general & administrative expenses (SG&A) came in at $502.6 million, up from $265.9 million in the prior year quarter. SG&A expenses were 28.1% of sales, down 180 bps year on year, and 210 bps when compared to second-quarter fiscal 2020. As a percentage of sales, contraction in SG&A was driven by improved store labor productivity and better terms with credit partners, partially offset by higher marketing investments.

The company reported adjusted operating income of $223 million, which accounted for 12.5% of sales. The figure improved considerably from adjusted operating loss of $41.7 million in the prior-year quarter and adjusted operating income of $53.1 million in second-quarter fiscal 2020.

Segment Discussion

Same-store sales in the North America segment increased 97.6% from the year-ago quarter levels, backed by broad-based category growth. Average transaction value (“ATV”) increased 10% year on year, while the number of transactions were up 70.1%. The segment’s e-commerce sales surged 25.8% year on year, while brick-and-mortar same-store sales increased 130.4%.

Same-store sales in the International segment rose 95.1% year over year. ATV decreased 4.5%, while the number of transactions went up 89.5%. Meanwhile, e-commerce sales rose 9.7%, while brick-and-mortar same-store sales grew 136%.

Financial Details

Signet ended the quarter with cash and cash equivalents of $1,573.8 million, net accounts receivable of $13.9 million as well as net inventories of $2,004.7 million. Long-term debt was $146.9 million and total shareholders’ equity was $1,555.5 million at the end of the quarter. Total liquidity was $2.8 billion at quarter end, consisting of cash of $1.6 billion as well as $1.2 billion available on the revolving credit facility.

For 13 weeks ended Jul 31, 2021, the company generated net cash of $458.5 million from operating activities. It had a free cash flow of $426.3 million during the aforementioned period.

Signet expects capital expenditures for the fiscal year in the bracket of $190-$200 million, as compared to $175-$200 million projected earlier.

The company announced a quarterly cash dividend of 18 cents per share for the third quarter of fiscal 2022, payable on Nov 26, 2021, to shareholders of record as on Oct 29, 2021, with an ex-dividend date of Oct 28, 2021. Signet also raised its share repurchase authorization from $166 million to $225 million, which it will evaluate on an opportunistic basis.

Store Update

As on Jul 31, 2021, the company had 2,837 stores. It plans to close more than 100 stores in fiscal 2022 alongside opening up to 100 locations, mainly in highly-efficient Piercing Pagoda formats. So far during fiscal 2022, the company has opened 37 stores, while shuttering 33, including 10 mall locations which were reopened in off-mall locations.

Outlook

For third-quarter fiscal 2022, management expects revenues of $1.26-$1.31 billion. In the year-ago quarter, the company’s revenues were $1.3 billion. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1.2 billion. The company expects same-store sales between a decline of 3% and an increase of 1%. Adjusted operating income is expected to be $10-$25 million.

Moving on, the company raised its expectation for fiscal 2022. The company now expects revenues in the bracket of $6.80-$6.95 billion compared with the prior projection of $6.50-$6.65 billion. During fiscal 2021, the company generated revenues of $5.23 billion. The Zacks Consensus Estimate for revenues for the fiscal year is currently pegged at $6.69 billion.

For fiscal 2022, management expects same-store sales in the range of 30-33%, up from the earlier view of 24-27%. Further, adjusted operating income is anticipated in the range of $618-$673 million, suggesting a rise from the prior projection of $490-$545 million.

Management continues to expect a shift in consumer discretionary spending, away from the jewelry category toward experience-oriented categories, during the second half of the year. The timing and magnitude of the shift depends on conditions related to the pandemic. Nevertheless, the company plans to increase marketing investments to keep supporting growth in revenues as well as to effectively manage shift in consumer spending during the second half. Amid such a scenario, the company predicts negative low-to-mid single digit same-store sales for the fourth quarter.

For fiscal 2022, the company expects to generate gross cost savings worth $85-$105 million, up from the earlier projection of $75-$95 million. The company’s cost savings are expected to benefit SG&A and gross margin metrics. Moreover, such savings are expected to mitigate the additional investments required in digital and technology for boosting the company's competitive advantage.

The company continues to focus on mitigating the impacts of supply-chain disruptions stemming from the pandemic, especially in India. The aforementioned guidance considers no further supply-chain disruptions for the rest of the fiscal year. Also, the guidance assumes no large scale store closures due to the pandemic.

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