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Signet Shares Up as Q2 Earnings Rise but Margins Disappoint

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Shares of Signet Jewelers Limited (SIG - Free Report) rose 7.7% on the index yesterday on the back of better-than-expected second-quarter fiscal 2015 results. On an organic basis, the company posted earnings per share of $1.00 that came a penny ahead of the Zacks Consensus Estimate while increasing 19% year over year. On an adjusted basis — including organic earnings as well as earnings attributable to Zale division’s 65 days performance — earnings were $1.01.

However, including one-time items, earnings came in at 72 cents that slumped 14.3%.

Total sales of $1,225.9 million were reported in the quarter, up 39.3% from the prior-year quarter driven by healthy performance of stores in U.K. division and acquisition of Zale. On an organic basis, revenues were $978.4 million, up 11.2%. The Zacks Consensus Estimate stood at $1,163 million.

E-Commerce sales grew to $50.5 million, up 61.9% on a year-over-year basis. On an organic basis, E-Commerce sales were $39 million, reflecting an increase of 25% over prior-year period.

For the quarter, on an organic basis comparable-store sales climbed 6.3% as against an increase of 3.6% in the prior-year quarter.

Gross profit increased 32.1% to $409.0 million while gross margin contracted 180 basis points to 33.4%. Operating income was $83.5 million, down 20.9% and operating margin fell 520 bps to 6.8%.

By division, sales at the Sterling Jewelers Division grew 9.4% to $810.4 million on the back of strong performance in the bridal brands, fashion diamonds and watches. Comps rose 6.7% while e-Commerce sales grew 16.6% to $29.5 million.

Sales at the Zale Division came in at $247.5 million driven by bridal and fashion brands. However comps dipped 0.9% and e-commerce sales were $11.5 million.

Sales in the U.K. division increased 17.1% to $162.9 million due to strong performance of diamond jewelry and watches. Moreover, comps grew 4.4% while e-Commerce sales grew 61 % to $9.5 million.

Other Details

Signet ended the quarter with cash and cash equivalents of $215 million, net receivables of $1,316 million while accounts payable were $235 million. Moreover, net cash provided by operating activities was $110.4 million.

As of Aug 2, 2014, the company operated 1,487 Sterling stores in the U.S. 1,609 Zale stores and 493 outlets in the U.K., thereby bringing the total store count to 3,589.


Signet provided guidance for the third quarter as well as fiscal after integrating the impact of Zale acquisition. Moreover, the company has raised its 3-year synergies expectations to $150 million to $175 million, up from $100 million projected earlier.

Signet expects fiscal third-quarter 2015 adjusted earnings in the range of 12-18 cents per share and comps in the range of 2%–4%.  

For fiscal 2015, Signet expects adjusted earnings in the range of $5.38 to $5.54. Capital expenditure to be around $240 million to $260 million, which includes expenses related to the launch of Kay and Jared outlets, store remodeling, enhancing digital and information technology infrastructure as well as outlet channel development.

The Zacks Consensus Estimate for the third quarter and fiscal year is pegged at 48 cents and $5.34 per share, respectively and is likely to be revised in the coming days.

Signet currently has a Zacks Rank #1 (Strong Buy). Other retail stocks that are worth consideration include Citi Trends, Inc. , Burlington Stores, Inc. (BURL - Free Report) and Abercrombie & Fitch Co. (ANF - Free Report) . All sport the same rank as Signet.

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