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Bear of the Day: Signet Jewelers (SIG)

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Signet Jewelers (SIG - Free Report) reported mixed results in the company's Q3 fiscal 2018 as earnings came in line with the Zacks Consensus Estimate and revenues actually surpassed the same.

But, the company's guidance was not, as if some diamond, to die for. Signet, which recently concluded the first phase of outsourcing of its credit portfolio to Alliance Data Systems as well as Genesis Financial Solutions, faced glitches in the credit transition process. The problem is likely to persist in the final quarter.

Consequently, the company trimmed fiscal 2018 guidance. The company forecasted EPS in the range of $6.10-$6.50, sharply down from the prior guidance of $7.16-$7.56.

Moreover, same store sales are anticipated to decline by mid-single digits, compared with the prior estimate of down low to mid-single digits.

After a slight recovery from a 2-year downtrend in sales and share prices, SIG had climbed back to $70 only to gap down dramatically below $50 on this report.

Segment Details

Sales at the Sterling Jewelers Division dipped 1.9% to $698.7 million. Same store sales were down 6.2%, reflecting a decline of 7.6% in the number of transactions but an increase of 1.6% in average transaction value.

Sales at the Zale Division edged down 3.6% to $323.6 million. Same store sales decreased 2.5%, reflecting a slump in the number of transactions by 6.9%. However, average transaction value rose by 2.5%. Same store sales for Piercing Pagoda's jumped 2.1% and sales increased 3.7% to $55.4 million.

Sales at the UK Jewelry Division dropped 1.5% to $128.4 million. Same store sales fell 5.1%, reflecting a decline of 12.9% in the number of transactions but an increase of 8.3% in average transaction value.

Analysts Downgrade the Outlook on Subprime Diamond Customers

Since the company's report last week, analysts have not only adjusted their current fiscal year EPS targets lower, but next year's estimates have dropped over 10% from $7.51 to $6.74.

Telsey Advisory Group, the boutique research firm focused on the retail sector, lowered their price target from $83 to $60.

Bank of America lowered their PT to $66.

And Wells Fargo analysts reportedly summed up the sentiment with this observation: "No Credit, No Problem... is Becoming a Problem"

Signet may have a shining future ahead, but until the earnings estimates stop going down and start heading back up, you should probably look elsewhere in retail. The Zacks Rank will let you know.

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