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Signet Falls on Lackluster Performance This Holiday Season

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Shares of Signet Jewelers Limited SIG lost sheen in the index and declined roughly 3.2% yesterday, following lackluster performance this holiday season. Management stated that the technical problem that arose in Sterling division’s eCommerce platform impacted the company’s holiday sales results. Further, challenging retail landscape, aggressive promotional strategies and waning mall traffic were the other reasons behind lower-than-expected results.

However, the jewelry retailer was quick to highlight that select categories – such as diamond fashion jewelry, bracelets, earrings; collections – such as Ever Us, Vera Wang Love; and selling channels – such as Kay off-mall, Zale eCommerce and Piercing Pagoda, performed quite well.

Signet’s total sales for the nine-week period ended Dec 31, 2016, decreased 5.1% to $1,940.9 million from $2,045.1 million in the prior year, while same store sales fell 4.6%. On a constant currency basis, total sales dropped 3.3%. eCommerce sales in the holiday season fell 2.4% to $142.5 million from the year-ago period, as the recent upgradation to eCommerce platform failed to live up to the expectations.

Same store sales across Sterling Jewelers division, Zale division and UK Jewelry division fell 5.2%, 3.5% and 3.7%, respectively.

This holiday season marks a stark difference from Signet’s performance in 2015, when total sales increased 5.3% and same store sales advanced 5.1% in the nine-week period ended Jan 2, 2016.

The dismal results compelled management to adopt a more conservative view. Signet, which competes with Tiffany & Co. , now expects fourth-quarter fiscal 2017 same store sales to decline in the band of 4.3–4.8% compared with previous forecast of 2–4%. Management now expects adjusted earnings between $4.00 and $4.05 per share for the quarter versus $4.00–$4.20 anticipated earlier.

For the fiscal year, same store sales are now expected to decrease between 2% and 2.5% compared with the prior estimate of 1–2.5% decline. Adjusted earnings are envisioned in the band of $7.38–$7.43 per share compared with past outlook of $7.38–$7.58. The Zacks Consensus Estimate for the fourth quarter and fiscal 2017 currently stand at $4.06 and $7.45, respectively.

Bottom Line

Signet’s dull holiday season and subsequent tightening of guidance has hurt investors’ sentiment and we will not be surprised if shares slide further in the coming days. In the past six months, shares of this Zacks Rank #3 (Hold) company have declined 4.6% compared with the Zacks categorized Retail-Jewelry Stores Industry, which gained 9.9% in the same time frame.

Stocks to Consider

Better-ranked stocks in the retail sector include Best Buy Co., Inc. BBY and Movado Group, Inc. MOV, both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy delivered an average positive earnings surprise of 25.7% in the trailing four quarters and has a long-term earnings growth rate of 11.9%.

Movado Group delivered an average positive earnings surprise of 10.5% in the trailing four quarters.

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