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Signet's (SIG) Shares Rise 8% on Upbeat Q1 & FY22 Guidance

·5 min read

Shares of the renowned jewelry retailer Signet Jewelers Limited SIG jumped 7.9% during the trading hours on Apr 12, following the hiked guidance for first-quarter and fiscal 2022. Management highlighted that strategic endeavors coupled with gains from stimulus, tax refunds and consumer enthusiasm on vaccine rollouts are acting as tailwinds. Moreover, the company has witnessed better-than-expected conversion and average ticket values in the first quarter.

Incidentally, the company now projects total revenues in the bracket of $1.57-$1.60 billion and same-store sales of 97-99% for the fiscal first quarter. It currently anticipates adjusted operating income of $85-$100 million for the same quarter. At fourth-quarter fiscal 2021 earnings call on Mar 18, management guided revenues of $1.42-$1.46 billion and same-store sales of 80-84% for the fiscal first quarter. Adjusted operating income was earlier envisioned at $40-$60 million. In the year-earlier quarter, the company generated revenues of 852.1 million and saw same-store sales decline of 38.9%.

For fiscal 2022, Signet now forecasts total revenues in the band of $6-$6.14 billion and same-store sales of 17-20%, while adjusted operating income is estimated at $335-$364 million. Earlier, management had guided revenues of $5.85-$6 billion, same-store sales of 14-17% and adjusted operating income of $290-$324 million for the same fiscal. In fiscal 2021, the company reported revenues of $5.23 billion and same-store sales dip of 10.8%. We note that the Zacks Consensus Estimate for first-quarter and fiscal 2022 revenues currently stands at $1.46 billion and $5.95 billion, respectively. These estimates are likely to witness an upward revision in the coming days.

Let’s Find Out More

With respect to the fiscal 2022 outlook, management reiterated some underlying assumptions. It continues to anticipate stronger sales performance during the first half of fiscal 2022. With the progress of the vaccine rollout, there can be a shift in consumer discretionary spending, away from jewelry toward experience-oriented categories. The company expects categories of pent-up demand to remain promotional in a bid to capture discretionary spend. Accordingly, management plans higher marketing investments to keep supporting growth and proactively manage shifts in consumer spending. That said, management continues to envision same-store sales to be negative in the second half of fiscal 2022.

Additionally, management highlighted that the Inspiring Brilliance growth strategy requires higher investments across digital and technology to reinforce competitive advantage and long-term position in the jewelry category. However, to partly offset the higher investment, it anticipates gross cost savings of $50-$75 million in fiscal 2022, including gains from closed stores and operational leverage. Markedly, these savings are likely to benefit SG&A and gross margin.

Furthermore, Signet continues to incur capital expenditures of $150-$175 million, thus investing in technology and innovation. Additionally, it still plans closing more than 100 stores in fiscal 2022 alongside opening up to 100 locations, mainly in the high-efficient kiosks. Meanwhile, the ongoing uncertainties regarding the magnitude and potential resurgence of the pandemic in key trade areas, unemployment, supply-chain disruptions and macro or governmental influences on spending, mainly in jewelry, might be deterrents. Also, management gives no certainty that the preliminary quarter-to-date trends would continue for the rest of the fiscal first quarter.

We note that Signet has evaluated the impact of inventory delays with respect to the recent pandemic surge in India and other parts of the world.  However, management currently believes that it has mitigated the short-term impacts but if the duration and magnitude of such inventory slowdowns intensify, these might hurt the company’s performance in fiscal 2022.

Meanwhile, Signet’s Inspiring Brilliance growth strategy bodes well. This focuses on expanding big banners, boosting service revenues, broadening the Accessible Luxury and Value segments as well as accelerating digital commerce. It is working toward evolving its customer-first strategy to a consumer-inspired experience, which includes tailored merchandise assortments and expanded services with more innovative and personalized experiences. Recently, it bought Rocksbox — a jewelry rental subscription service — which is likely to expedite Signet’s online service offerings. Through this acquisition, this Zacks Rank #3 (Hold) company will be able to reach out to self-purchasing women customers – a space where it is presently under-developed. Impressively, Signet’s stock has surged 121.2% over the past three months and surpassed its industry’s 98.7% rally.

Key Picks in Retail

Movado Group MOV has an average earnings surprise of 7.5% for the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch ANF has a long-term earnings growth rate of 18% and a Zacks Rank of 1.

L Brands LB, also a Zacks Rank #1 stock, has a long-term earnings growth rate of 13%.

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