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Signet (SIG) Q2 Earnings Beat Estimates, Sales Fall Y/Y

·6 min read

Signet Jewelers Limited SIG posted better-than-expected results for second-quarter fiscal 2023. However, both sales and earnings declined from the year-ago fiscal quarter’s reading. Also, same-store sales dropped 8.2% from the year-earlier fiscal quarter’s reading. Results were hurt by macroeconomic conditions, including inflation and economic pressure on the value shoppers.

We note that shares of this jewelry retailer have fallen 12% during the trading hours on Sep 1. This presently Zacks Rank #5 (Strong Sell) player has declined 8.1% in the past three months compared with the industry’s dip of 4.4%.

Nonetheless, management is focused on Signet's growth strategy and the structural advantages of its operating model. It remains committed to delivering an annual double-digit operating margin, accomplishing market share gains and creating shareholder value.
Quarterly Details

Signet reported adjusted earnings of $2.68 per share, beating the Zacks Consensus Estimate of $2.54. The bottom line plunged from $3.57 earned in the year-ago fiscal quarter.

This jewelry retailer generated total sales of $1,754.9 million, ahead of the Zacks Consensus Estimate of $1,753 million. The top line dipped 1.9% from the prior-year fiscal quarter’s tally due to soft same-store sales.

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Zacks Investment Research


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Signet recorded growth in bridal revenues, up 11% from the year-ago fiscal quarter’s level. All banners increased 15% for purchases in the $10,000 plus price range. Diamonds Direct has been DIG’s robust strategic acquisition so far, generating $113 million of revenues in the reported fiscal quarter.

A Sneak Peek Into Margins

The adjusted gross profit in the fiscal second quarter amounted to $670.5 million, down from $717.6 3 million in the year-ago fiscal’s comparable quarter.

Adjusted SG&A expenses came in at $477.9 million, down from $502.6 million in the prior fiscal year’s comparable quarter. SIG reported an adjusted operating income of $193.2 million, down from the $223 million recorded in the year-ago fiscal quarter. As a rate of sales, the adjusted operating margin contracted 150 basis points to 11%.

Segment Discussion

Sales in the North America segment dipped 1.8% from the year-ago fiscal quarter’s number to $1.6 billion. Same-store sales fell 8.7% from the year-ago fiscal quarter’s levels due to lower number of transactions, partly compensated by a rise in ATVs. ATV rose more than 19% from the prior-year fiscal quarter’s tally.

Sales in the International segment dropped 14.6% from the year-earlier fiscal quarter’s reading to $111.6 million. Same-store sales in the segment slipped 1.5% from the year-ago fiscal quarter’s tally, reflecting the impacts of increased ATVs and lower transactions.

Financial Details

Signet ended the fiscal second quarter with cash and cash equivalents of $851.7 million, accounts receivable of $35.6 million and inventories of $2,190.8 million. The long-term debt was $147.2 million at the end of the reported fiscal quarter. Total shareholders’ equity was $1,367.9 million at the end of the fiscal second quarter.

As of second-quarter fiscal 2023, Signet used net cash of $114.9 million from operating activities. SIG had an adjusted free cash flow of a negative $173.1 million as of Jul 30, 2022.

As of Jul 30, 2022, Signet bought back 4.7 million shares for $341 million. SIG has buybacks worth $622.4 million left under its authorization. Signet’s board declared a quarterly cash dividend of 20 cents per share for the third quarter of fiscal 2023.

We note that Signet had 2,833 stores as of Jul 30, 2022.

Guidance

Signet reiterated its guidance for fiscal 2023. It continues to expect total revenues in the band of $7.60-$7.70 billion, indicating a decline from $7.83 billion delivered in fiscal 2022. The adjusted operating income is still anticipated in the range of $787-$828 million, suggesting a dip from $908.1 million recorded in the last fiscal year.

Adjusted earnings per share (EPS) are envisioned in the bracket of $10.98-$11.57 for fiscal 2023, implying a decrease from $12.28 earned in fiscal 2022.

Capital expenditures for fiscal 2023 are likely to be nearly $250 million.

For the third quarter of fiscal 2023, management expects revenues in the range of $1.46-$1.49 billion. The adjusted operating income is expected in the range of $20-$34 million.

Management’s guidance assumes consumer pressure, including inflation. It expects a certain shift in consumer discretionary spending from the jewelry category, indicating the decelerating levels of consumer confidence and pent-up demand for experience-oriented categories in fiscal 2023. Signet’s initiatives to lower supply-chain hurdles have been effective so far and management does not expect any considerable bottlenecks in the availability of inventory.

3 Retail Stocks to Bet on

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass TGLS, Ulta Beauty ULTA and CVS Health CVS.

Tecnoglass manufactures, and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figure. ULTA has an expected EPS growth rate of 10.7% for three-five years.

CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. CVS has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.


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