It has been about a month since the last earnings report for Signet (SIG). Shares have added about 3.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Signet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Signet’s Q4 Earnings and Sales Beat Estimates
Signet reported fourth-quarter fiscal 2021 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and also improved year over year. Notably, this was the company’s third straight quarter of sales and earnings beat.
Quarter in Detail
The company reported adjusted earnings of $4.15 per share that beat the Zacks Consensus Estimate of $3.59. Moreover, the bottom line improved 13% on a year-over-year basis.
The jewelry retailer generated total sales of $2,186.5 million that surpassed the Zacks Consensus Estimate of $2,077 million. The top line also increased 1.5% year over year. Further, total same-store sales rose 7% year-on-year.
Meanwhile, e-commerce sales skyrocketed 70.5% from the prior-year quarter’s level and accounted for 23.4% of the top line. However, the company’s brick-and-mortar same-store sales were down 4.2% year-on-year.
A Sneak Peek Into Margins
We note that gross profit declined 3.2% to $869.5 million, while gross margin contracted 190 basis points (bps) to 39.8%, mainly owing to strategic promotion as well as reduced levels of service revenues primarily related to lower store traffic.
Selling, general & administrative expenses dropped 9.4% year-on-year to $573.8 million. The metric accounted for 26.2% of sales, reflecting a 320-bps improvement, driven by reduced labor, advertising and central expenses.
Further, the company reported an adjusted operating income of $293.8 million, which increased 8.7% from the prior-year quarter. Adjusted operating income margin expanded 80 bps to 13.4%.
Segment Discussion
Same-store sales in the North America segment increased 10.4% from the year-ago quarter’s levels. The segment’s e-commerce sales surged 66% year-on-year, while brick-and-mortar same-store sales inched up 0.6%.
Despite the suppressed traffic conditions in the retail environment, the company’s enhanced omni-channel capabilities aided in driving conversion levels. Notably, average transaction value ("ATV") rose 1.1% year-on-year, while the number of transactions climbed 9.9%. Further, management highlighted that same-store sales witnessed growth across all banners in the United States.
Same-store sales in the International segment declined 28.3% year over year. Meanwhile, e-commerce sales rose 115.1%, while brick-and-mortar same-store sales declined 56.2%. Further, ATV increased 6.3%, while the number of transactions fell 29.7%.
Financial Details
Signet ended the quarter with cash and cash equivalents of $1,172.5 million, accounts receivable, net of $88.7 million, and net inventories of $2,032.5 million. Long-term debt was $146.7 million and total shareholders’ equity was $1,190.3 million at the end of the quarter.
For fiscal, 2021, the company generated net cash of $1,372.3 million from operating activities. It had a free cash flow of $1,289.3 million during the aforementioned period.
For fiscal 2022, it expects capital expenditure of $150-$175 million. Markedly, the company had reduced its capital expenditure in fiscal 2021 to $83 million for conserving cash in response to the pandemic.
Store Update
As of Jan 30, 2021, the company had 2,833 stores. In fiscal 2021, it closed 428 stores, while opened 53 stores. The company plans to close more than 100 stores in fiscal 2022 alongside opening up to 100 locations.
Outlook
For first-quarter fiscal 2022, management expects revenues of $1.42-$1.46 billion. Same-store sales for the quarter are expected to be 80-84%. Adjusted operating income is expected to be $40-$60 million.
Preliminary same-store sales for the first quarter till Mar 14, 2021, were nearly 16%. Given the sturdy performance so far in the fiscal first quarter, management plans to continue investing in digital and marketing capabilities. The company’s fiscal first-quarter guidance takes into consideration such a rise in investments.
Moving on, for fiscal 2022, the company expects revenues of $5.85-$6.00 billion, while same-store sales are expected to be 14-17%. Further, adjusted operating income is anticipated to be $290-$324 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 363.16% due to these changes.
VGM Scores
At this time, Signet has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Signet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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