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Is Signet's (SIG) Q3 Earnings Poised to Beat Estimates?

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Signet Jewelers Limited. (SIG - Free Report) is slated to report third-quarter fiscal 2019 results on Dec 6. In the trailing four quarters, it has outperformed the Zacks Consensus Estimate by average of 84.8%. Let’s see what’s in store for the company this time around.

Factors Aiding the Stock

Signet holds a significant position in the world jewelry market, owing to its distinctive brand appeal. The company is well positioned to augment performance in the long run by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes.  In fact, strong presence in the jewelry market along with well-chalked efforts to expand business and omnichannel presence bodes well.

To drive growth in the long run, Signet earlier announced its ‘Signet Path to Brilliance’ plan, which will continue for the next three years. Notably, this three-year strategic initiative comprises focusing on customer-centric growth actions, enhancing efficiency across omnichannel and most importantly driving cost effectiveness. Additionally, the company is on track with differentiating its banners and launching new collections.

Further, Signet has been gaining from growth in the e-commerce realm. Markedly, e-commerce sales accounted for almost 10.6% of total sales in second-quarter fiscal 2019. In the first quarter, e-commerce sales were almost 10% of the total sales. Both traffic and average order value witnessed growth in the first half of the fiscal. Moreover, to augment online business, the company is making efforts to boost digital-marketing capabilities. Notably, the acquisition of R2Net (in September 2017) has enabled Signet to combine its retail jewelry business with the former’s solid digital operations.

The aforementioned factors are likely to aid the performance of this renowned jeweler in the upcoming quarterly release. Markedly, the Zacks Consensus Estimate for revenues in the third quarter is pegged at $1,172 million, up 1.3% from $1,157 million in the year-ago quarter. We note that total revenues of this Hamilton-based company had increased 1.5% in the last reported quarter.

All Doesn’t Seem Rosy for Signet

Signet has been grappling with dismal operating margin for the last two quarters, mainly due to the termination of credit insurance combined with credit outsourcing expenses. Other factors causing such a decline include higher labor and advertising costs. Moreover, these costs along with credit outsourcing expenses and enhanced incentive compensation led to an increase in SG&A expenses in the second quarter. Persistence of this trend may pose a threat to the company’s bottom line in near future.

To top it, management issued a soft bottom-line guidance for the third quarter, wherein adjusted loss per share is expected to be $1.08-$1.23.  Incidentally, the Zacks Consensus Estimate for the quarter under review is pegged at a loss of $1.08 compared with earnings of 15 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has gone down 3 cents in the past 30 days.

Signet Jewelers Limited Price and EPS Surprise

 

What the Zacks Model Unveils?

Our proven model conclusively shows that Signet is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Signet has a Zacks Rank #3 and an Earnings ESP of +8.97%, which makes us confident of a beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Casey General Stores, Inc. (CASY - Free Report) has an Earnings ESP of +6.17% and a Zacks Rank #2.

Costco Wholeasale Corporation (COST - Free Report) has an Earnings ESP of +3.09% and a Zacks Rank #3.

Zumiez Inc. (ZUMZ - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #3.

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