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Signet (SIG) Q4 Earnings Beat Estimates, Sales Increase Y/Y

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Signet Jewelers Limited (SIG - Free Report) reported fourth-quarter fiscal 2021 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and also improved year over year. Notably, this was the company’s third straight quarter of sales and earnings beat.

Even though stores lacked sheen, the quarter gained from sturdy advancement in the digital realm. Management is impressed with the momentum achieved during the quarter, which also marks the third year of its Path to Brilliance transformation. The company is moving into the next phase of its growth strategy — Inspiring Brilliance. The strategy focuses on expanding big banners, boosting service revenues, broadening the Accessible Luxury and Value segments as well as accelerating digital commerce, amongst others. Additionally, the company provided its view for the first quarter and fiscal 2022.

Signet’s shares rose 3.4% during the trading session on Mar 18, following the quarterly announcement. Over the past three months, shares of the company have gained 123.5% compared with the industry’s rise of 99.9%.

 

 

Quarter in Detail

The company reported adjusted earnings of $4.15 per share that beat the Zacks Consensus Estimate of $3.59. Moreover, the bottom line improved 13% on a year-over-year basis.

The jewelry retailer generated total sales of $2,186.5 million that surpassed the Zacks Consensus Estimate of $2,077 million. The top line also increased 1.5% year over year. Further, total same-store sales rose 7% year-on-year.

Meanwhile, e-commerce sales skyrocketed 70.5% from the prior-year quarter’s level and accounted for 23.4% of the top line. However, this Zacks Rank #4 (Sell) company’s brick-and-mortar same-store sales were down 4.2% year-on-year.

Signet Jewelers Limited Price, Consensus and EPS Surprise

 

Signet Jewelers Limited Price, Consensus and EPS Surprise

Signet Jewelers Limited price-consensus-eps-surprise-chart | Signet Jewelers Limited Quote

A Sneak Peek Into Margins

We note that gross profit declined 3.2% to $869.5 million, while gross margin contracted 190 basis points (bps) to 39.8%, mainly owing to strategic promotion as well as reduced levels of service revenues primarily related to lower store traffic.

Selling, general & administrative expenses dropped 9.4% year-on-year to $573.8 million. The metric accounted for 26.2% of sales, reflecting a 320-bps improvement, driven by reduced labor, advertising and central expenses.

Further, the company reported an adjusted operating income of $293.8 million, which increased 8.7% from the prior-year quarter. Adjusted operating income margin expanded 80 bps to 13.4%.

Segment Discussion

Same-store sales in the North America segment increased 10.4% from the year-ago quarter’s levels. The segment’s e-commerce sales surged 66% year-on-year, while brick-and-mortar same-store sales inched up 0.6%.

Despite the suppressed traffic conditions in the retail environment, the company’s enhanced omni-channel capabilities aided in driving conversion levels. Notably, average transaction value ("ATV") rose 1.1% year-on-year, while the number of transactions climbed 9.9%. Further, management highlighted that same-store sales witnessed growth across all banners in the United States.

Same-store sales in the International segment declined 28.3% year over year. Meanwhile, e-commerce sales rose 115.1%, while brick-and-mortar same-store sales declined 56.2%. Further, ATV increased 6.3%, while the number of transactions fell 29.7%.

Financial Details

Signet ended the quarter with cash and cash equivalents of $1,172.5 million, accounts receivable, net of $88.7 million, and net inventories of $2,032.5 million. Long-term debt was $146.7 million and total shareholders’ equity was $1,190.3 million at the end of the quarter.

For fiscal, 2021, the company generated net cash of $1,372.3 million from operating activities. It had a free cash flow of $1,289.3 million during the aforementioned period.

For fiscal 2022, it expects capital expenditure of $150-$175 million. Markedly, the company had reduced its capital expenditure in fiscal 2021 to $83 million for conserving cash in response to the pandemic.

Store Update

As of Jan 30, 2021, the company had 2,833 stores. In fiscal 2021, it closed 428 stores, while opened 53 stores. The company plans to close more than 100 stores in fiscal 2022 alongside opening up to 100 locations.

Strategy Update

As part of the Inspiring Brilliance growth strategy, the company will make use of data-driven insights for targeting new and existing customers. It is working toward evolving its Customer First strategy to a Consumer-Inspired experience, which includes tailored merchandise assortments and expanded services, which offer more innovative and personalized experiences.

Signet also plans to boost its omni-channel capabilities by focusing on better connecting physical and digital footprints.

The Inspiring Brilliance growth strategy also includes transformational productivity, as part of which the company expects to achieve efficiencies in both gross margin and selling, general and administrative expenses. Such actions are likely to lead to benefits of $175-$200 million over the next three years. The company will continue to work toward achieving capital efficiency.

Additionally, Signet will carry on with its store portfolio-optimization efforts, which include transitioning to off-mall formats. That said, in addition to investing in business growth, the company plans to reduce debt leverage as well as boost shareholder wealth.

Outlook

For first-quarter fiscal 2022, management expects revenues of $1.42-$1.46 billion. Same-store sales for the quarter are expected to be 80-84%. Adjusted operating income is expected to be $40-$60 million.

Preliminary same-store sales for the first quarter till Mar 14, 2021, were nearly 16%. Given the sturdy performance so far in the fiscal first quarter, management plans to continue investing in digital and marketing capabilities. The company’s fiscal first-quarter guidance takes into consideration such a rise in investments.

Moving on, for fiscal 2022, the company expects revenues of $5.85-$6.00 billion, while same-store sales are expected to be 14-17%. Further, adjusted operating income is anticipated to be $290-$324 million.

The company expects to incur sturdy sales during the first half of the year. With the progress of the roll-out of vaccinations, management expects a shift in consumer discretionary spending, away from the jewelry category toward experience-oriented categories. Nevertheless, the company plans to increase marketing investments to keep supporting growth in revenues as well as manage the shift in consumer spending. That said, management expects same-store sales to be negative in the second half of the year.

Additionally, management highlighted that its Inspiring Brilliance growth strategy requires significant investments in digital and other business areas. To support such actions, the company plans to utilize gross cost savings worth $50-$75 million, which are expected in fiscal 2022. Such savings are likely to arise from store closures and operating efficiencies.

Stocks to Consider in Retail

L Brands, Inc. (LB - Free Report) , currently flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 13%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tapestry, Inc. (TPR - Free Report) , carrying a Zacks Rank #2 (Buy) at present, has a long-term earnings growth rate of 10%.

Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 21%.

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