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Can Signet's (SIG) Path to Brilliance Plan Revive Lost Sheen?

Zacks Equity Research

Shares of Signet Jewelers Limited SIG have plunged 38.6% in the past six months compared with the industry’s decline of 7.7%. The stock’s dismal run on the bourses is likely to have been caused by sluggishness in the International segment.



Sales in the International segment declined 13.3% on a reported basis and 4.4% at cc to $113.9 million in the second quarter. Same-store sales in the segment dipped 7%, with Average Transaction Value remaining flat, as well as a transaction decline of 6.8%. Dismal same-store sales performance stemmed from softness across all categories and a tough operating environment in the U.K. Previously, sales in the International segment declined 13.4% on a reported basis while same store sales in the segment fell 5.2% in the fiscal first quarter.

This is likely to have a negative impact on the company’s top line in the near term. Management expects fiscal third-quarter sales in the range of $1.14-$1.16 billion, down from $1.19 billion generated in the year-ago quarter. Additionally, same-store sales are projected to decline 1-2%.

Further, Signet witnessed dismal margins in second-quarter fiscal 2020. Adjusted gross profit declined 5.5% to $463.1 million. Also, adjusted gross margin contracted 60 basis points (bps) to 33.9%, owing to impact of higher diamond sales to third parties from Botswana operations and unfavorable timing shift of recognized revenues. Moving ahead, persistence of these factors may hurt the company’s results in the near future. In fact, management anticipates adjusted loss per share in the range of $1.02-$1.16 during the third-quarter of fiscal 2020.

Efforts for Revival

Nevertheless, management is striving to boost long-term growth. In this regard, this Zacks Rank #3 (Hold) had earlier announced a strategic initiative — Signet Path to Brilliance plan — which will continue for the next three years. Notably, this three-year strategy focuses on customer-centric growth actions, efficiency across omnichannel and cost effectiveness. Further, the company is on track to differentiate its banners and launch new collections.

The strategy aims to enhance savings, a portion of which will be invested in growth initiatives that includes e-commerce development, omnichannel capabilities and product innovations. In March 2018, the company announced its three-year Path to Brilliance transformation plan. In this regard, Signet continues to anticipate cost savings in the range of $70-$80 million for fiscal 2020. Additionally, it continues to project cost savings in the band of $200-$225 million from this program by the end of fiscal 2021, including savings of $85 million achieved in fiscal 2019.

Apart from these factors, the company is expanding its digital presence. In doing so, it is focusing on double-digit growth in e-commerce and striving to achieve 15% of total sales in fiscal 2021. In the second quarter of fiscal 2020, e-commerce sales came in at $156.9 million, up 4.4% on a year-over-year basis. E-commerce sales contributed nearly 11.5% to total sales, up from 10.6% in the prior-year quarter. Going ahead, the company plans to continue to strengthen its footing in the e-commerce arena on improved features and experiences.

Moreover, the buyout of R2Net (in September 2017), which owns popular online jewelry retailer — JamesAllen.com and Segoma Imaging Technologies — has enab;ed the company to combine its retail jewelry business with the former’s solid digital operations. Going ahead, management plans to utilize the digital innovation capabilities of R2Net to come up with innovative offerings.

Bottom Line

All said, we hope that the above-mentioned growth strategies will provide some cushion to the stock and enable the company to regain lost sheen.

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