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Signet (SIG) Down 2.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Signet (SIG - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Signet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Signet Jewelers Tops Q2 Earnings Estimates, Ups View

Signet’s second-quarter adjusted earnings of 52 cents per share outpaced the Zacks Consensus Estimate of 21 cents. However, the same declined roughly 60.1% from the year-ago figure of $1.33.

This jewelry retailer generated total revenues of $1,420.1 million that came ahead of the Zacks Consensus Estimate of $1,328 million and rose 1.5% year over year. On a constant-currency basis, revenues increased 1.1%.

Per management, sales were primarily driven by strong same-store sales performance, the James Allen acquisition in September 2017, the application of new revenue recognition accounting standards and favorable foreign exchange. Same-store sales rose 1.7% in the quarter on a reported basis. E-commerce sales including James Allen came in at $150.3 million, up 82.8% on a year-over-year basis.

Adjusted gross profit increased 7.1% to $490.2 million, while gross margin expanded 180 basis points (bps) to 34.5%. Selling, general and administrative expenses (SG&A) were up 8.8% to $444.8 million in the quarter owing to higher advertising, increased store-staff cost, higher incentive compensation and credit outsourcing costs that were partly offset by $10.4 million in savings related to in-house credit operations. Adjusted operating income came in at $48.6 million, down from $135.6 million a year ago. Meanwhile, operating margin declined 630 bps to 3.4%.

Segment Discussion

Sales at the North America segment increased 1.9% on a reported basis (or 1.9% at constant currency basis) to $1,286.7 million. Comps rose 2.1% on the back of James Allen’s contribution to sales.

Further, comps increased 7.1%, 11.5% and 1.2% in Zales, Piercing Pagoda and Jared, respectively. However, the Kay segment witnessed comps decline of 2.1%.

Sales at the International segment decreased 0.3% to $131.5 million on a reported basis and declined 3% on a constant-currency basis. Comps at the segment declined 2.4% due to lower sales of diamond jewelry and fashion watches. This was partially offset by higher prestige watch sales.

Other Details

Signet ended the first quarter with cash and cash equivalents of $134.1 million, net accounts receivable of $11.1 million and inventories worth $2,363.8 million. Long-term debt and total shareholders’ equity were $671.1 million and $1,400.1 million, respectively.

For fiscal 2019, the company plans to close more than 200 stores and open 35-40 stores. As of Aug 4, the company operated 3,493 stores.

In the fiscal second quarter, the company bought back shares worth $425 million. As of Aug 4, the company has an authorization of $165.6 million left under its share repurchase program. Further, management announced a quarterly dividend of 37 cents per share for third-quarter fiscal 2019. This dividend will be paid on Nov 30 to shareholders of record as on Nov 2.

Guidance

Management raised its guidance for fiscal 2019. The company anticipates earnings per share between $4.05 and $4.40, up from its prior guidance of $3.75-$4.25.

Further, it expects same-store sales to be flat to down 1.5% compared with the prior view of down low to mid-single digit.

Sales for the year is projected in the range of $6.2-$6.3 billion, a jump from the previous projection of $5.9-$6.1 billion. The company continues to anticipate capital expenditures in the range of $165-$185 million.

Signet also provided third-quarter fiscal 2019 guidance. The company anticipates adjusted loss per share in the band of $1.08-$1.23. Sales are projected in the range of $1.15-$1.17 billion. Further, gross margin rate and SG&A expenses are expected to increase year over year in the quarter.

Earlier in March 2018, the company announced the three-year Path to Brilliance transformation plan. In this regard, Signet continues to anticipate cost savings of $85-$100 million during fiscal 2019 with additional cost savings of $115-$125 million by the end of the three-year program.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Signet has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Signet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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