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Signet (SIG) Down 11.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Signet (SIG - Free Report) . Shares have lost about 11.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Signet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Signet Reports Loss & Sales Miss in Q1

Signet posted soft first-quarter fiscal 2021 results. Although the company reported narrower-than-expected loss per share in the quarter, sales lagged the Zacks Consensus Estimate, breaking the beat trend of nine straight quarters. Also, both the top and the bottom line fell year over year. Moreover, the company witnessed softness in same-store sales, which plunged 38.9% year over year. Margins were also dismal in the reported quarter. Management did not provide any guidance for the fiscal year owing to persistent uncertainties.

Q1 in Detail

The company reported adjusted loss of $1.59 per share, narrower than the Zacks Consensus Estimate of a loss of $2.45. However, the figure compared unfavorably with adjusted earnings of 8 cents a share reported in the year-ago quarter.

This jewelry retailer generated total sales of $852.1 million that lagged the Zacks Consensus Estimate of $925 million. Also, the top line declined 40.5% year over year and 40.2% on a constant-currency (cc) basis.

Meanwhile, e-commerce sales grew 6.7% from the prior-year quarter to $164.7 million. On excluding the temporary closure of the James Allen distribution center, the metric increased 18.2%. With respect to COVID-19, the company has accelerated its transformation to a digital omni-channel retailer and has pivoted temporarily to e-commerce-only operations while physical stores were shut. Impressively, the company’s virtual selling endeavors led to increasing consumer demand, witnessing e-commerce improvement of 55% in April, excluding the James Allen's New York distribution center impact. This momentum continued into May.

We note that Signet is boosting the shopping experience online with advanced virtual and digitally native experiences as well as in-store with store-in-stores and outlets housing several banners.

Adjusted gross profit plunged 59.2% to $203.8 million and adjusted gross margin contracted significantly from 34.9% to 23.9% owing to lower sales resulting from the pandemic.

However, selling, general & administrative expenses fell 24.6% to $358.4 million on reduced labor costs stemming from employee furloughs, temporary pay reductions, decreased advertising expenses and lower overheads. Further, the company reported adjusted operating loss of $142.5 million against operating income of $24.2 million recorded in the year-ago quarter.

Segment Discussion

Sales at the North America segment declined 39.9% on a reported basis to $781.1 million. Further, same-store sales fell 39% from a year ago.

Moreover, the segment’s e-commerce sales grew 4.3%, while brick-and-mortar same-store sales tumbled 44.6%. On excluding the impact of the James Allen distribution center, e-commerce improved 15.8%. Its average transaction value ("ATV") dropped 6.5%, while the number of transactions declined 34.5%. Meanwhile, North America payment plan participation rate, with both credit and leasing sales, came in at 43.4% in fiscal first quarter, down from 50% in the year-ago quarter.

Sales at the International segment declined 41.8% on a reported basis to $64.9 million. Same-store sales at the segment dropped 37.5% year over year. Further, ATV edged up 2.7%, while number of transactions fell 41.2%. Meanwhile, e-commerce sales rose 37.2%, while brick-and-mortar same-store sales decrease of 46.6%.

Financial Details

Signet ended the quarter with cash and cash equivalents of $1,066.6 million, accounts receivable of $29.8 million and inventories of $2,392.2 million. Long-term debt was $1,336 million and total shareholders’ equity was $990.5 million at the end of the quarter.

During first-quarter fiscal 2021, the company used net cash of $7.6 million in operating activities. It had negative free cash flow of $15.3 million at the end of the quarter. Moreover, management anticipates reducing capital expenditures by nearly 50% compared to prior year and will prioritize plans supporting digital efforts.

Furthermore, the company’s dividend will remain suspended till it has better market clarity. However, management has elected to pay the August preferred dividend in kind.

As of May 2, 2020, Signet had 3,172 stores. In the fiscal first quarter, store count declined by 36 and square feet of selling space contracted 1%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -163.91% due to these changes.

VGM Scores

At this time, Signet has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Signet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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