Back to top

Signet (SIG) Glitters on Q2 Earnings Beat & R2Net Buyout

Read MoreHide Full Article

Signet Jewelers Limited (SIG - Free Report) reported robust financial numbers in second-quarter fiscal 2018, after missing both top and bottom lines in the previous quarter. Notably, this marked the second quarter in the past eleven quarters, wherein the company’s sales surpassed the Zacks Consensus Estimate. Following the results, the company updated fiscal 2018 earnings projections.

Better-than-expected results and upbeat fiscal 2018 earnings view provided much needed cushion to the stock which has witnessed a sharp decline of 37.8% in the past one year, compared with the industry’s decline of 3.1%. Shares of this Hamilton, Bermuda based company were last seen up roughly 17% during the pre-market trading hours.

Signet announced an agreement to acquire R2Net, which owns popular online jewelry retailer – JamesAllen.com, as well as Segoma Imaging Technologies that enhances digital shopping experiences. Priced at $328 million, this deal will combine Signet’s retail jewelry business with R2Net’s solid digital operations. This move is in sync with Signet’s omni-channel transformation. The deal is likely to be concluded in third-quarter fiscal 2018.

The company is striving hard to position itself on growth trajectory. The company will invest between $260 million and $275 million toward opening of new Kay off-mall stores, remodeling, information and technology advancement as well as toward augmenting distribution facilities.

The company is improving digital marketing efforts and made changes to organizational structure. Taking in to account the success attained on its Customer-First Omni-channel strategy and other endeavors, Signet retained outlook. The company had earlier announced that it will sell $1 billion of prime-only credit quality accounts receivable to Alliance Data Systems Corporation, as a part of its plan to outsource its in-house credit program.

Coming to the Facts

Signet’s second-quarter earnings of $1.33 per share beat the Zacks Consensus Estimate of $1.10, and increased sharply from $1.06 reported in the year-ago quarter. The company’s earnings were driven by effective cost management and outsourcing of credit portfolio.

Moreover, management now envisions earnings per share in the band of $7.16-$7.56 for fiscal 2018 compared with the previous estimate of $7.00-$7.40.

The retailer of diamond jewelry and watches generated total sales of $1,399.6 million that increased 1.9% year over year and also came above the Zacks Consensus Estimate of $1,335 million. Same store sales were up 1.4% compared with a decrease of 2.3% registered in the prior-year period. Improvements in sales were primarily due to fashion jewelry including bracelets, rings, and necklaces. E-commerce sales came in at $82.2 million, up 18.1% on a year-over-year basis.

Management continues to expect fiscal 2018 same store sales to decline in the low-to-mid single-digit percentage.

Gross profit declined 4.9% to $457.9 million, while gross margin contracted 120 basis points (bps) to 32.7%. Operating income came in at $135.6 million, up 13.1%, while operating margin expanded 100 bps to 9.7%.

Segment Discussion

Sales at the Sterling Jewelers Division increased 3.4% to $868.1 million. Same store sales rose 1.8%, reflecting a decline of 2.9% in the number of transactions but an increase of 5.2% in average transaction value.

Sales at the Zale Division inched up 1.6% to $394.1 million. Same store sales rose 2.4%, reflecting an increase of the number of transactions and average transaction value by 0.4% and 0.2%, respectively. Same store sales for Piercing Pagoda's jumped 7% and sales increased 9.3% to $62.3 million.

Sales at the UK Jewelry Division plunged 9.2% to $131.9 million. Same store sales dropped 3.4%, reflecting a decline of 15.5% in the number of transactions but an increase of 14.4% in average transaction value.
Other segment sales came in at $5.5 million.

Signet Jewelers Limited Price, Consensus and EPS Surprise

 

Signet Jewelers Limited Price, Consensus and EPS Surprise | Signet Jewelers Limited Quote

Other Details

Signet ended the fiscal quarter with cash and cash equivalents of $119.1 million, net accounts receivable of $664.5 million and inventories of $2,282.1 million. Long-term debt and total shareholders’ equity were $705.3 million and $2,176.6 million, respectively.

Further, the company repurchased 8.1 million shares for $460.0 million. It also authorized a new buyback plan in June, which brings total authorization to $650.6 million, as of Jul 29, 2017.

In fiscal 2018, the company plans to close 165-170 stores mostly in mall based regions while opening 90-115 fresh stores, mostly Kay off-mall. As of Jul 29, 2017, the company operated 3,637 stores.

Signet currently carries a Zacks Rank #3 (Hold).

3 Retail Stocks Likely to Steal the Show

Better-ranked stocks in the retail sector include The Children's Place, Inc. (PLCE - Free Report) , Burlington Stores, Inc. (BURL - Free Report) and Big Lots, Inc. (BIG - Free Report) . Children's Place sports a Zacks Rank # 1 (Strong Buy), while Burlington Stores and Big Lots carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place delivered an average positive earnings surprise of 16.3% in the trailing four quarters and has a long-term earnings growth rate of 9%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Big Lots delivered an average positive earnings surprise of 83% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.

One Simple Trading Idea

Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.

This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today.

Learn more >>



More from Zacks Analyst Blog

You May Like