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Bear of the Day: Signet Jewelers Limited (SIG)

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Signet Jewelers Limited (SIG - Free Report) , a Zacks Ranked #5 (Strong Sell), is engaged in retailing of jewelry, watches and associated services. The company operates primarily in the United States, the United Kingdom, the Republic of Ireland and the Channel Islands. Signet Jewelers Ltd., formerly known as Signet Group PLC, is based in Hamilton, Bermuda.

Recent Earnings Performance

In mid-March the company reported Q4 18 results where they beat both top and bottom line expectations.  But for the coming fiscal year (2019, during current year of 2018) management noted some issues with the outsourcing of its credit portfolio.  This credit issue caused management to reduce Q1 EPS between a range of -$0.05 to -$0.15, well below the previous expectation of $0.62.  Further, the company’s Q1 19 comparable store sales are trending towards the low end of the anticipated range.  To add to the problems, SG&A spending is now expected to be elevated in the first three quarters of FY 19.  These combined issues are adding to significant pressures on the company as a whole.  

While management is taking steps to alleviate these issues, the turnaround is not expected to benefit the top and bottom lines till the fourth quarter of the year at the earliest.  Management conceded that they will not see improvements till FY 2020; “Looking ahead, Fiscal 2019 will be an important transition year as we implement our transformation plan, and we expect to see improved operational and financial performance beginning in Fiscal 2020.”

Management’s Take

According to Virginia Drosos, CEO, “Fiscal 2018 was a challenging year for Signet. We gained sales momentum in our Zales banner in the fourth quarter as our strategic initiatives began to take hold, but we experienced challenges at our Kay and Jared banners, including execution issues related to the first phase of our credit outsourcing transaction.”

Performance Charts

As you can see in the chart below, SIG has been underperforming the retail-jewelry segment for almost all of 2018.

The second chart illustrates SIG’s price performance, and declining annual earnings estimates.

Signet Jewelers Limited Price and Consensus

Signet Jewelers Limited Price and Consensus | Signet Jewelers Limited Quote

Declining Earnings Estimates

Due to the aforementioned credit issues, and lower guidance, earnings estimates have been negatively revised over the past 30 days for Q1 19, Q2 19, FY 19, and FY 20; Q1 19 fell from $0.85 to $0.57, Q2 19 dropped from $1.03 to $0.78, FY 18 plummeted from $6.30 to $4.05, and FY 20 was cut from $5.25 to $3.97.

Bottom Line

While management is attempting to turn around the company with its new three year plan, the near term impact on the stock price will remain under pressure until some positive results are maintained.  

Until then, an investor looking to invest in the retail/jewelry segment would be better served by examining Movado Group (MOV - Free Report) who currently carries a Zacks Rank #2 (Buy) rating.

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