About a month has gone by since the last earnings report for Signet Jewelers Limited (NYSE:SIG) . Shares have added about 8.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Signet Glitters on Q2 Earnings Beat & R2Net Buyout
Signet Jewelers reported robust financial numbers in second-quarter fiscal 2018, after missing both top and bottom lines in the previous quarter. Notably, this marked the second quarter in the past eleven quarters, wherein the company’s sales surpassed the Zacks Consensus Estimate. Following the results, the company updated fiscal 2018 earnings projections.
Signet announced an agreement to acquire R2Net, which owns popular online jewelry retailer — JamesAllen.com, as well as Segoma Imaging Technologies that enhances digital shopping experiences. Priced at $328 million, this deal will combine Signet’s retail jewelry business with R2Net’s solid digital operations. This move is in sync with Signet’s omni-channel transformation. The deal is likely to be concluded in third-quarter fiscal 2018.
The company is striving hard to position itself on growth trajectory. The company will invest between $260 million and $275 million toward opening of new Kay off-mall stores, remodeling, information and technology advancement as well as toward augmenting distribution facilities.
The company is improving digital marketing efforts and made changes to organizational structure. Taking in to account the success attained on its Customer-First Omni-channel strategy and other endeavors, Signet retained outlook. The company had earlier announced that it will sell $1 billion of prime-only credit quality accounts receivable to Alliance Data Systems Corporation (NYSE:ADS), as a part of its plan to outsource its in-house credit program.
Coming to the Facts
Signet’s second-quarter earnings of $1.33 per share beat the Zacks Consensus Estimate of $1.10, and increased sharply from $1.06 reported in the year-ago quarter. The company’s earnings were driven by effective cost management and outsourcing of credit portfolio.
Moreover, management now envisions earnings per share in the band of $7.16-$7.56 for fiscal 2018 compared with the previous estimate of $7.00-$7.40.
The retailer of diamond jewelry and watches generated total sales of $1,399.6 million that increased 1.9% year over year and also came above the Zacks Consensus Estimate of $1,335 million. Same store sales were up 1.4% compared with a decrease of 2.3% registered in the prior-year period. Improvements in sales were primarily due to fashion jewelry including bracelets, rings, and necklaces. E-commerce sales came in at $82.2 million, up 18.1% on a year-over-year basis.
Management continues to expect fiscal 2018 same store sales to decline in the low-to-mid single-digit percentage.
Gross profit declined 4.9% to $457.9 million, while gross margin contracted 120 bps to 32.7%. Operating income came in at $135.6 million, up 13.1%, while operating margin expanded 100 bps to 9.7%.
Segment Discussion
Sales at the Sterling Jewelers Division increased 3.4% to $868.1 million. Same store sales rose 1.8%, reflecting a decline of 2.9% in the number of transactions but an increase of 5.2% in average transaction value.
Sales at the Zale Division inched up 1.6% to $394.1 million. Same store sales rose 2.4%, reflecting an increase of the number of transactions and average transaction value by 0.4% and 0.2%, respectively. Same store sales for Piercing Pagoda's jumped 7% and sales increased 9.3% to $62.3 million.
Sales at the UK Jewelry Division plunged 9.2% to $131.9 million. Same store sales dropped 3.4%, reflecting a decline of 15.5% in the number of transactions but an increase of 14.4% in average transaction value.
Other segment sales came in at $5.5 million.
Other Details
Signet ended the fiscal quarter with cash and cash equivalents of $119.1 million, net accounts receivable of $664.5 million and inventories of $2,282.1 million. Long-term debt and total shareholders’ equity were $705.3 million and $2,176.6 million, respectively.
Further, the company repurchased 8.1 million shares for $460.0 million. It also authorized a new buyback plan in June, which brings total authorization to $650.6 million, as of Jul 29, 2017.
In fiscal 2018, the company plans to close 165-170 stores mostly in mall based regions while opening 90-115 fresh stores, mostly Kay off-mall. As of Jul 29, 2017, the company operated 3,637 stores.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in estimates revision. There have been two revisions higher for the current quarter compared to one lower.
VGM Scores
At this time, Signet Jewelers' stock has a great Growth Score of A,while lagging a bit on the momentum front with B. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Signet Jewelers Limited Price and Consensus
Signet Jewelers Limited Price and Consensus | Signet Jewelers Limited Quote
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.
Based on our scores, the stock is more suitable for value, growth than momentum investors.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions indicates a downward shift. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
Signet Jewelers Limited (SIG): Free Stock Analysis Report
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