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Can Signet's (SIG) Savings Plans Help Keep Costs in Check?

Zacks Equity Research

Signet Jewelers Limited SIG is progressing well with its Path to Brilliance plan. Further, the company is making efforts to enhance its digital capabilities. Also, Signet has been delivering solid top-line performance for a while now, backed by its strong position in the jewelry market and well-chalked strategies. 

However, the company grapples with high costs and weakness in its International unit. These factors, weighing on the company’s third-quarter performance, have marred investors’ optimism in the stock. We note that shares of the company have slumped 53.2% in the past three months compared with the industry’s decline of 38.6%. 

Let’s take a closer look at these aspects affecting this Zacks Rank #3 (Hold) company’s performance and see if there are any chances of a turnaround.

Strategies to Boost Performance Bode Well

Signet’s Path to Brilliance plan, which was announced in March 2018, has been designed to augment cost savings, engage in customer-centric growth and bolster e-commerce. Additionally, the company is on track with differentiating its banners and launching new collections.

Notably, the most vital aspect of this three-year plan is cost containment. A portion of the cost savings will be invested in the development of e-commerce and omnichannel capabilities along with product innovation. Under the plan, management expects to generate $200-$225 million of net cost savings over the next three fiscals, with pre-tax charges expected to be $170-$190 million. For fiscal 2019, the company anticipates net cost savings of $85-$100 million, with the rest coming in by the end of the program.

Further, the company is also making efforts in the e-commerce space. Through the acquisition of R2Net (in September 2017), which owns popular online jewelry retailers like JamesAllen.com and Segoma Imaging Technologies, Signet has been able to combine the retail jewelry business with R2Net’s solid digital operations. Going ahead, management plans to utilize the digital innovation capabilities of R2Net to come up with innovative offerings. This move is in sync with Signet’s omnichannel transformation.

Moreover, the company’s e-commerce platform has been performing well. In the third quarter of fiscal 2019, e-commerce sales including James Allen came in at $125 million, up 54.9% on a year-over-year basis. E-commerce sales accounted for almost 10.5% of total sales. Prior to this, in the second quarter, e-commerce sales were almost 10.8% of the total sales. Going ahead, the company plans to continue strengthening its footprint in the e-commerce arena with improved features and experiences. Signet strives to generate 15% of total sales from its digital platform in fiscal 2021. Also, encouraged by the sturdy mobile traffic witnessed lately, management intends to make more investments in this area.

Will Strategic Efforts Offset Hurdles?

Signet has been grappling with higher labor and advertising costs that have been raising SG&A expense levels for a while now. Moreover, such costs combined with negative impacts stemming from credit outsourcing led to an operating loss in the third quarter. Also, the company is witnessing soft performance in its International unit since the past two quarters, due to lower sales of diamond jewelry and fashion watches. 

While persistence of such headwinds is a viable threat to the company’s performance, we expect robust savings efforts and other well-chalked strategic endeavours to provide cushion and help the stock revive in the forthcoming periods. 

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Burberry Group PLC BURBY has long-term earnings growth rate of 23% and a Zacks Rank #2.

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