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Bear of the Day: Signet Jewelers (SIG)

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Signet Jewelers Limited (SIG - Free Report) is suffering as consumers avoid the mall, which is where most of their stores are located. This Zacks Rank #5 (Strong Sell) saw same-store-sales decline in all of its worldwide brands.

Signet is the largest retailer of diamond jewelry in the world. It operates about 3,600 stores worldwide under the well known brands of Kay Jewelers, Zales, Jared The Galleria of Jewelry, H.Samuel, Ernest Jones, Peoples and Piercing Pagoda.

Huge Miss in Q1 Adds to the Pain

Shares of Signet had already been sliding for most of 2017 but it's fiscal first quarter earnings report on May 25 sent them tumbling even lower.

Signet missed by 63 cents, reporting earnings of $1.03 versus the consensus of $1.66.

Same-store-sales got absolutely crushed, falling 11.5%. It said that 330 basis points of that decline was due to the later timing of Mother's Day, which is a significant jewelry holiday.

But even still, not a single brand saw positive comps.

Among its brands, the worst performers included Kay, which saw same-store-sales fall 13.5% year-over-year. Zales was down 13.4%, including a decline of 13.8% at Zales US. Jared was equally as weak, with same-store-sales falling 10.3%.

Many of their brands have brick and mortar stores in the mall, which saw declining traffic as consumers shun the malls. Diamond fashion jewelry such as bracelets, earrings and necklaces were the best performers in the merchandise portfolio.

Announcement On Its Credit Portfolio

Many consumers buy jewelry on credit and Signet has a large credit operation. But on May 25, it announced a two-part change in its strategy.

The first phase will be to sell $1 billion of its prime-only credit quality accounts receivable to Alliance Data Systems at par value. Under a 7-year agreement, Alliance Data will become the primary provider of credit funding, servicing and associated program functions to Kay, Jared and regional brands' customers.

In the second phase, Signet will retain the existing non-prime accounts receivable on its balance sheet and continue to originate new accounts, while outsourcing the credit servicing functions of those accounts to Genesis Financial Solutions. That contract is good initially for 5 years.

Share Repurchase Program and Dividends

Signet is currently operating a share repurchase program with $510.6 million left on its authorization. In the fiscal first quarter, it did not repurchase any shares.

It also pays a quarterly dividend, currently yielding 2.6%.

Full Year Estimates for Fiscal 2018 Cut

Given the disappointing quarter, it's not surprising that the analysts cut full year estimates.

2 estimates have been lowered for fiscal 2018 in the last week which has pushed the Zacks Consensus Estimate down to $6.89. That's an earnings decline of 7.6% from the prior year.

Shares Sink to New Lows

Shares of Signet are now down 49% year-to-date as they hit multi-year lows.

They're cheap, though, with a forward P/E of just 7.

But given the outlook at the mall, it would seem that Signet's brands could struggle for some time to come.

No one in the jewelry space is having an easy time of it. But if you must buy a jewelry retailer, Tiffany (TIF - Free Report) is a Zacks Rank #3 (Hold).

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