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Here's Why Signet's (SIG) Q2 Earnings Are Likely to Decline

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Signet Jewelers Limited (SIG - Free Report) is scheduled to report second-quarter fiscal 2020 results on Sep 5, before the opening bell.

In the last reported quarter, earnings and revenues of this retailer of diamond jewelry, watches as well as other products topped the Zacks Consensus Estimate by 133.3% and 1.2%, respectively. In fact, its earnings surpassed estimates in all the trailing four quarters, with the average being 72%.

However, fiscal first-quarter earnings and revenues decreased 20% and 3.3%, respectively, on a year-over-year basis. This marks the second straight quarter of year-over-year decline of the metrics. The company has been witnessing dismal sales trend, reflecting lower same-store sales owing to a challenging retail environment.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share (EPS) has declined to 26 cents from 28 cents over the past 60 days. This indicates a 50% decrease from the year-ago reported earnings of 52 cents per share. Revenues are expected to be $1.34 billion, suggesting a 5.9% year-over-year decrease.

Signet Jewelers Limited Price and EPS Surprise

 

Signet Jewelers Limited Price and EPS Surprise

Signet Jewelers Limited price-eps-surprise | Signet Jewelers Limited Quote

Factors at Play

Signet’s revenues and earnings are expected to decline in the quarter to be reported. A highly competitive U.S. retail landscape with soft traffic trends and tough macro environment in the United Kingdom are expected to affect the company’s fiscal second-quarter revenues and same-store sales. Meanwhile, adverse currency rates remained a drag. The company expects same-store sales to decline 2.5-3.5% in second-quarter fiscal 2020.

Signet’s margins are also expected to be subdued in the quarter. Resultantly, its profitability will likely be hurt, thanks to increase in SG&A expenses due to higher advertising expenses and increasing credit outsourcing costs. Management expects the company’s adjusted EPS in the range of 23-30 cents in the fiscal second quarter, indicating a decline from 52 cents in the corresponding period of 2019.

That said, its focus on enhancing omnichannel and e-commerce capabilities is expected to aid the top line to some extent. Also, the “Path to Brilliance” strategic initiative (that comprises major cost cuts) will likely help the company to boost margins and EPS.

What the Zacks Model Says

Our proven model does not show that Signet is likely to beat estimates in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -33.30%.

Zacks Rank: It currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are a few stocks in the Zacks Retail-Wholesale sector, which have the right combination of elements to beat estimates in their respective quarters to be reported.

Dollar Tree, Inc. (DLTR - Free Report) has an Earnings ESP of +7.91% and a Zacks Rank #3.

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +2.64% and a Zacks Rank #3.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.30% and a Zacks Rank #3

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