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Signet (SIG) Q1 Earnings Beat Estimates, Revenues Down Y/Y

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Signet Jewelers Limited (SIG - Free Report) posted better-than-expected first-quarter fiscal 2020 results, with the top and bottom lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year for the second straight quarter. The company has been witnessing dismal sales trend year to date along with soft retail traffic.

Further management lowered its fiscal 2020 guidance. It now anticipates adjusted earnings to be $2.88-$3.17 per share, whose midpoint of $3.03 is lower than the Zacks Consensus Estimate of $3.05. Earlier, the company guided adjusted earnings to be $2.87-$3.45. Further, the company is on track with its Path to Brilliance plan to improve sales and profitability in the long term.

We note that in the past three months, the company’s shares have lost 26.8% compared with the industry’s decline of 4.5%.  


Q1 Details

The company reported adjusted earnings of 8 cents per share in the quarter, which surpassed the Zacks Consensus Estimate of a loss of 24 cents. However, the bottom line declined 20% from the year-ago quarter’s 10 cents.

This jewelry retailer generated total revenues of $1,432 million that came ahead of the Zacks Consensus Estimate of $1,414 million. However, the top line fell 3.3% year over year. On a constant-currency (cc) basis, revenues decreased 2.6%. Sales were adversely impacted by dismal same store sales, store closures and unfavorable foreign currency.

The company’s same-store sales contracted 1.3% year over year. E-commerce sales came in at $154.3 million, up 5.3% on a year-over-year basis. E-commerce accounted for 10.8% of total sales.

Gross profit increased 3% to $499.4 million, while gross margin expanded 220 basis points (bps) to 34.9% on the back of higher credit outsourcing, negative impact related to increased diamond sales to third parties from its Botswana operations and the timing shift of revenues recognized.

Selling, general and administrative expenses (SG&A) were up 33.2% to $475.2 million in the quarter due to higher advertising expenses and increasing credit outsourcing costs. However, these were partly offset by cost savings, shift in timings of certain corporate costs and reduced store staff expenses owing to closure of few stores. Adjusted operating income came in at $24.2 million, up 0.4% from the year-ago quarter, driven by cost efficiencies, timing of SG&A and increased advertising.

Segment Discussion

Sales at the North America segment decreased 3.5% on a reported basis (or 3.4% at cc) to $1,300.3 million. Same-store sales declined 0.9%, owing to negative impact from timing shift of service plan revenues. On the flip side, shift in timing of Jared promotions had a favorable impact on same store sales.

Further, same store sales decreased 1.4% each in Zales and Kay segments, and 2% in Jared. Meanwhile, the metric grew 13.5% in Piercing Pagoda.

Sales at the International segment declined 13.4% on a reported basis and 7.4% at cc to $111.5 million. Same store sales at the segment declined 5.2%, with ATV growth of 0.2% and a transaction decrease of 5.4%. Dismal same store sales performance mainly stemmed from softness across all categories and a tough consumer environment.

Financial Details

Signet ended the first quarter with cash and cash equivalents of $195.1 million, net accounts receivable (inclusive of accounts receivable held for sale) of $23.1 million and inventories worth $2,394.2 million. Long-term debt and total shareholders’ equity were $639 million and $1,161.4 million, respectively.

For fiscal 2020, the company plans to close roughly 150 stores and open 20-25 stores. As of May 4, the company operated 3,300 stores.

Moreover, Signet’s board declared a quarterly dividend of 37 cents to be payable on Aug 30, 2019, to shareholders of record as on Aug 2, 2019. 

John Wiley & Sons, Inc. Price, Consensus and EPS Surprise


In addition to the revised earnings projections mentioned above, management trimmed its sales guidance for fiscal 2020. It now expects same store sales to decline 1.5-2.5% compared with the prior view of flat to down 2.5%.

Sales for the fiscal is projected to be $6-$6.06 billion compared with the previous projection of $6.26-$6.31 billion. Further, adjusted operating income is anticipated to be $260-$280 million compared to $260-$300 million guided previously. The company anticipates capital expenditures of $135-$155 million, down from the earlier view of $165-$185 million.

Signet also provided second-quarter fiscal 2020 guidance. The company anticipates adjusted earnings per share of 23-30 cents. Sales are projected to be $1.35-$1.37 billion. Also, same store sales are projected to decline 2.5-3.5%. The company has already witnessed dismal sales in May. The trend is likely to persist going ahead, due to weak traffic and tough environment in the U.K. Moreover, adjusted operating income is expected to be $35-$40 million.

Earlier in March 2018, the company announced its three-year Path to Brilliance transformation plan. In this regard, Signet continues to anticipate cost savings of $70-$80 million for fiscal 2020. Additionally, this Zacks Rank #3 (Hold) company continues to project cost savings from this program to be $200-$225 million by the end of fiscal 2021, including the savings of $85 million achieved in fiscal 2019.

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