Signet's Q2 Sales Fall but Beat Projections, Investors Take Notice

Jewelry
06/09/2019 10:47

Signet Jewelers' sales for the second quarter of fiscal 2020 (ended Aug. 3) fell but did not decline as much as expected, and investors took notice. The company's stock, declining hard and fast since 2015 - and down over 60% year-to-date in 2019 - jumped by roughly 25% on the news and have held its gains. The world’s largest jewelry retailer announced reported that total sales fell 3.9% to $1.34 billion in Q2 and that comps for same-store-sales fell 1.5%, outpacing the forecasted 2–3% drop. Earnings came in at $53 million, or 51 cents a share, also topping analyst estimates. Its quarterly results included a 37 cents a share dividend.

Only two of the group's several banners recorded an increase in quarterly comps, with low sticker price Piercing Pagoda continuing to outpace the others, increasing its same-store sales by 11.4%, while fine jewelery banner Zales same-store sales climbed by 2%. eCommerce sales were $156.9 million, up 4.4% year-over-year. eCommerce sales accounted for 11.5% of total sales, up from 10.6% of total sales in the prior year quarter. Brick and mortar same store sales declined 2.3%. The North America segment, making up 91% of Signet's total sales, fell by 3.6% while international sales declined by 13.3%. Fashion jewelry was the best performing category, gaining 2% in the second quarter, while bridal slipped 5%, and watches declined by 10%. 

“We continue to gain traction on our transformation initiatives and delivered second quarter results that exceeded our same store sales, non-GAAP operating profit, and non-GAAP earnings per share expectations," said Signet Chief Executive Officer Virginia C. Drosos." Our continuing cost control and disciplined inventory management also led to improved adjusted free cash flow generation in both the second quarter as well as year to date. We remain on track to deliver our full year non-GAAP financial guidance.” Their guidance expects same store sales to decline 1.5% to 2.5% for fiscal 2020, with total sales of $6 billion to $6.03 billion. Both of these projections had been revised downward following their first quarter results.  As part of the 'transformation', Signet is looking to cut costs by $200 - $225 million and target savings of $70 - $80 million this year. 

In addition to cost cutting, Signet plans to continue revamping its product line. Citing Drosos from a conference call, Rob Bates of JCK summarizes these changes as: "Among the merchandise its stores will stock this holiday: an expansion of the company’s partnership with Disney, with refreshed Princess anniversary and bridal lines; new Vera Wang collections, including one for men; Zales Private, an Art Deco–inspired line that will “celebrate Zales’ rich heritage and diamond expertise since 1924”; more colored gemstone bridal; and a beefed-up fashion assortment, built around 'on-trend' gold. In addition, the Neil Lane Premiere Bridal and True North Celestial Diamond collections are being rolled out to more stores." They will also continue "to move advertising away from television and toward digital."

As Drosos concludes, "As we enter the competitive holiday season, we believe we are positioned to execute our product strategy by launching additional flagship brands, delivering relevant on-trend new merchandise and offering a highly competitive assortment for value-oriented shoppers. We remain focused on delivering our Path to Brilliance transformation designed to drive sustainable growth and create value for our shareholders over the long-term.”