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Signet Shines on Strong E-commerce, Stock Up More than 70%

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Despite mushy store sales, Signet Jewelers Limited (SIG - Free Report) managed to maintain its gleam on the back of strong e-commerce operations. The trend was well reflected in the company’s second-quarter fiscal 2021 results, with e-commerce sales skyrocketing 72.1% year on year.

Strong digital business combined with other sound business fundamentals is aiding this Zacks Rank #3 (Hold) stock. Shares of the company have surged 74.7% in the past three months compared with the industry’s rise of 4.4%. That said, let’s take a closer look at the aspects impacting this renowned jeweler’s performance.

Digital Business is a Key Growth Catalyst

Signet has been boosting online shopping with advanced virtual experiences. The company’s investment in virtual selling is aiding higher levels of conversion in digital and retail foot traffic. During the second quarter, it served more than 300,000 customers via virtual consultations, which led to higher than historical conversion rates. It has empowered more than 15,000 store associates to engage with customers via virtual selling. The company also increased e-commerce distribution throughput five-fold times. Backed by such prudent measures, the company’s e-commerce penetration for the second quarter stood at 30%.

To further support growth in the digital arena, the company is broadening online assortments alongside search and browse capabilities. We expect the company to keep gaining from its endeavors to boost online sales. In fact, it has witnessed e-commerce growth of 65.2% in August, with penetration rates as high as 20%.

Other Notable Strategic Efforts

Signet is on track with its Path to Brilliance plan. This three-year strategic initiative comprises focusing on customer-centric growth actions, enhancing efficiency and driving cost effectiveness. Being in the third year of Path to Brilliance initiative, the company anticipates net savings of at least $285 million compared with its original target of $225 million. It has already accomplished $185-million net cost savings over the first two years of Path to Brilliance. Management further identified structural cost savings of more than $100 million for fiscal 2021. The savings are likely to include workforce reductions, direct sourcing, indirect spend and occupancy costs.

As part of the company’s fiscal 2021 store optimization plans, it has closed 293 stores, out of its previously announced plans to shutter 380 stores. The company is on track with optimizing its store fleet by shifting to off mall locations, which is likely to help in occupancy cost reduction and boost performance. Additionally, the company is investing toward enhancing distribution, manufacturing and diamond sourcing processes. It is also focused on evolving its brand and solidifying position in core markets.

Weak Store Sales

Matters are gloomy when it comes to Signet’s store sales. During the second quarter, total same store sales plunged 31.3%, while brick-and-mortar same store sales declined 46%. Management pointed out that due to the COVID-19 pandemic, the company’s design and service centers stayed shut until late second quarter. As a result, revenue recognition related to Signet's extended service plan programs was lower than last year, thereby affecting same store sales by nearly 450 basis points. Thanks to such headwinds, second-quarter top-line reflected a decline of 34.9% year over year. Although same store sales have improved in August, management is uncertain whether the trend will continue for the rest of third-quarter fiscal 2021.

Wrapping Up

Clearly, a choppy top-line picture, stemming from weak same store sales is a concern for Signet. Nevertheless, we expect favorable trends in the digital front and gains from the Path to Brilliance plan to continue as upsides.

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