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Why Signet Jewelers Has Turnaround Potential

- By Robert Stephens, CFA

Signet Jewelers Ltd.'s (SIG) omnichannel growth potential could catalyze its financial performance. The company is improving its website, providing greater personalization, a more streamlined buying process and visualization tools.

It is seeking to differentiate itself from rivals through product innovation and brand diversification, while simultaneouly refreshing its marketing strategy. In addition, the opening of a concept store and disciplined investment in its existing locations could strengthen the company's competitive advantage.


Although Signet's recent sales performance has been disappointing, an efficiency program and increased investment in the customer experience may enhance its financial prospects.

Having declined 50% in the last year versus a 3% fall for the S&P 500, the stock could have long-term recovery potential.

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Omnichannel

Investments in the company's omnichannel offering has the potential to boost its outlook. Signet has invested in improved content, faster speeds and higher-quality imagery, while launching a 360-degree online visualization tool of its 1,000 top-selling designs. It has also launched an enhanced "design your ring" platform in order to improve conversion rates and strengthen its competitive advantage. An improvement to on-site search results is expected to yield improved conversion rates as well as an increase in the add-to-cart rate.

Additional improvements the company is making to connect with consumers online is streamlining its checkout process by allowing customers to save credit cards to their personal accounts.

Strategy

Signet is seeking to differentiate its inventory through greater innovation and is refocusing its product assortment through new collections. All of its banners will have new in-house developed designs, which aim to be more relevant in terms of current jewelry trends.

Signet is making its products more relevant to its target audiences by increasing personalization through the use of social media analytics. It will also refresh its brand messaging within a holistic TV and digital marketing campaign. An optimized and better-targeted advertising strategy is expected to increase customer engagement across all channels.

Investments in the company's stores has been disciplined. It is focusing on off-mall locations in desirable markets. A concept store, which features advances in digital technology and a millennial-inspired shopping experience, was recently launched to widen the brand's appeal to new customer demographics, while allowing it to become increasingly innovative.

Threats

Same-store sales declined 1.3% during the nine weeks to Jan. 5. This was due to a decline in sales of legacy products, higher credit costs, lower traffic during the holiday season and intense competitive promotions. In response, Signet has reduced its forecasts for the current quarter, expecting same-stores sales to decline between 1.6% and 2.5%. This is down from previous guidance of a 1.5% decline to a 1% gain.

Declining sales could potentially be offset by an efficiency program which seeks to reduce costs that do not impact the customer experience. The program is on track to deliver its net cost savings goal, with two-thirds of its fiscal 2019 target having already been achieved. Its plan to close over 200 stores in fiscal 2019 is on track, which is expected to cut costs further.

Same-store sales growth could be improved in the long run through Signet's program to enhance training for team members across the business. This includes an interactive program to improve employees' understanding of its payment plan options and products.

Verdict

Increased product innovation could help to differentiate Signet from sector peers. In addition, clearer brand differentiation is expected to increase the appeal of its offerings among different consumer groups.

Investment in the company's omnichannel offering could enhance its financial outlook. Signet is seeking to enhance the speed and ease of its checkout process in order to boost conversion rates, while improving the customer experience through increased personalization.

Although its recent sales performance has been disappointing, an efficiency program could lead to improved margins. An investment in the customer experience and in improving its stores may also help to offset challenging operating conditions.

After a disappointing 12 months, which has seen shares tumble, Signet could offer turnaround potential.

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This article first appeared on GuruFocus.