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Signet (SIG) Q4 Earnings and Sales Beat Estimates, Stock Up

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Zacks Equity Research
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Shares of Signet Jewelers Limited SIG jumped nearly 30% during the trading session on Mar 26, following its better-than-expected fourth-quarter fiscal 2020 results. Impressively, the quarter marked its ninth consecutive sales beat. Also, the company witnessed solid growth in its same-store sales and e-commerce business. Margins were also impressive in the reported quarter.

Moreover, Signet accomplished cost reduction of roughly $100 million, thus outpaced its cost-saving target for fiscal 2020. Management cited that the momentum the company experienced during the holiday season has continued while going into fiscal 2021.

However, March-to-date performance saw higher impact of coronavirus pandemic, compelling management to shutter all its retail stores. Consequently, it has not issued fiscal 2021 outlook. Also, Signet has temporarily suspended its dividend program, but will pay the May quarterly dividend on its preference shares in kind.

Q4 in Detail

The company reported adjusted earnings of $3.67 per share, which outshined the Zacks Consensus Estimate of $3.47. However, the figure declined 7.3% from the year-ago quarter.

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

This jewelry retailer generated total revenues of $2,153.3 million that surpassed the Zacks Consensus Estimate of $2,122 million. However, the top line dipped 0.1% year over year and 0.3% on a constant-currency (cc) basis. Nevertheless, the company’s same-store sales increased 2.3% year over year.

Meanwhile, e-commerce sales grew 15.1% from the prior-year quarter to $299.9 million. Markedly, e-commerce constituted 13.9% of total sales, up from 12.1% recorded in the year-ago quarter. Brick-and-mortar same-store sales inched up 0.5% year-over-year. Further, North America payment plan participation rate with both the credit and leasing sales was 47%, down from 50.1% in the year-ago quarter.

Adjusted gross profit rose 2.8% to $901.3 million, while adjusted gross margin expanded 120 basis points (bps) to 41.9%, driven by robust cost savings from transformation efforts.

However, adjusted selling, general & administrative expenses dipped 0.3% from the prior-year period to $633.2 million in the quarter. As a rate of sales, the metric leveraged 60 bps to 29.4%.

The company posted adjusted operating profit of $270.3 million, up nearly 12% from the year-ago quarter. Also, adjusted operating margin grew 140 bps to 12.6%, on higher gross margin and lower SG&A.

Segment Discussion

Sales at the North America segment grew 0.6% on a reported basis (or 0.5% at cc) to $1,953.8 million. Same-store sales increased 2.9% from the year-ago period, owing to solid performance of Zales, Peoples and Piercing Pagoda brands and growth across all mall-based banners.

Moreover, the segment’s e-commerce sales grew 15% and brick-and-mortar same-store sales rose 1.1%. Its average transaction value ("ATV") dipped 0.5% while the number of transactions grew 3.4% in higher conversion in-store.

Further, same-store sales rose 5.9% at Zales, 0.6% at Kay, 7.7% at Piercing Pagoda, 3.3% at Peoples and 32.6% at James Allen. Meanwhile, the metric declined 7.5% and 2% at Regional banners and Jared, respectively.

Sales at the International segment declined 4.5% on a reported basis and 6.3% at cc to $186.2 million. Same-store sales at the segment dipped 3.1% year over year, with e-commerce sales rise of 15.8%, compensated with brick-and-mortar same-store sales decrease of 5.8%. Further, ATV increased 1.6%, while number of transactions fell 4.6%. Dismal same-store sales performance mainly stemmed from softness across categories and a tough operating environment in the U.K.

Financial Details

Signet — which shares space with Tiffany TIF in the industry — ended the quarter with cash and cash equivalents of $374.5 million, accounts receivable of $38.8 million and net inventories of $2,331.7 million. Long-term debt was $515.9 million and total shareholders’ equity was $1,222.6 million at the end of the quarter.

During fiscal 2020, this Zacks Rank #5 (Strong Sell) company generated net cash of $555.7 million from operating activities. It had free cash flow of $419.4 million at the end of the fiscal year. As of Feb 1, 2020, Signet operated nearly 3,200 stores.

Furthermore, management reduced the overall capital expenditures due to temporary store closures in the wake of the coronavirus crisis. Also, it remains focused on inventory management. The company has chosen to access its additional $900 million from the senior secured asset-based revolving credit facility to strengthen financial flexibility. It had over $1.2 billion cash and an additional $292 million available in the revolving credit facility, at the time of drawdown. Its recent borrowing base under the credit facility was roughly $1.4 billion.

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Chico's FAS, Inc. CHS has an impressive long-term expected earnings growth rate of 15% and a Zacks Rank #2 (Buy).
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