Signet Jewelers (SIG) Tops Q1 Earnings Estimates, View Intact

Shares of Signet Jewelers Limited (NYSE:SIG) rallied 18.4% following the release of first-quarter fiscal 2019 results. The company not only crushed estimates but also maintained the guidance for fiscal 2019 in a challenging retail landscape.

Results in Details

First-quarter adjusted earnings of 10 cents per share fared better than the Zacks Consensus Estimate of a loss of 11 cents. However, the same declined roughly 90% from the year-ago figure of $1.03.

The retailer of diamond jewelry and watches generated total revenues of $1,480.6 million that came ahead of the Zacks Consensus Estimate of $1,429 million and rose 5.5% year over year . On a constant currency basis, revenues increased 4.3% . Per management, sales were primarily driven by the James Allen acquisition in September 2017, the application of new revenue recognition accounting standards and favorable foreign exchange. However, same-store sales dropped 0.1% in the quarter on a reported basis. E-commerce sales, including James Allen, came in at $146.5 million, up 80.9% on a year-over-year basis.

Gross profit declined 1.3% to $484.8 million, while gross margin contracted 200 basis points (bps) to 33%. Operating income came in at $24.1 million, down from $115.3 million a year ago. Meanwhile, operating margin declined 660 bps to 1.6%.

Segment Discussion

Sales at the North America segment increased 5.8% on a reported basis (or 5.7% at constant currency basis) to $1,347.8 million.

Comps ticked up 0.6% on the back of James Allen contribution to sales and a planned shift in timing of promotions, offset by credit outsourcing transition issues.

Further, comps increased 8.9% and 7.2% in Zales and Piercing Pagoda, respectively. However, the Kay and Jared segments witnessed respective comps decline of 1.9% and 7.8%.

Sales at the International segment increased 5.1% to $128.7 million on a reported basis but declined 6.1% on a constant currency basi. Comps at the segment declined 6.7% due to lower sales of diamond jewelry and fashion watches. This was partially offset by higher prestige watch and e-commerce sales.

Other Details

This Zacks Rank #3 (Hold) company ended the first quarter with cash and cash equivalents of $153.9 million, net accounts receivable of $6.8 million and inventories worth $2,280.5 million. Long-term debt and total shareholders’ equity were $688.2 million and $2,429 million, respectively.

For fiscal 2019, the company plans to close more than 200 stores apart from opening 35-40 stores. As of May 5, the company operated 3,528 stores.

Signet expects to repurchase $475 million shares in fiscal 2019. In the fiscal first quarter, the company bought back shares worth $60 million. As of May 5, the company has an authorization of $590.6 million left under its share repurchase program. Further, management announced a quarterly dividend of 37 cents per share for second-quarter fiscal 2019. This dividend will be paid on Aug 31, to shareholders of record as on Aug 3.

Guidance

Management continues to expect same-store sales decline in fiscal 2019 in the range of low to mid-single-digit. Further, the company continues to anticipate earnings per share between $3.75 and $4.25 in comparison with the fiscal 2018 figure of $6.51.

Sales for the year are still projected in the range of $5.9-$6.1 billion. The company continues to anticipate capital expenditures of $165 million to $185 million.

The company also provided second-quarter fiscal 2019 guidance. Adjusted earnings per share are expected in the band of 5-20 cents and sales are projected in the range of $1.30-$1.35 billion. Further, comps are expected to decline mid-single digit.

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