Signet (SIG) Q4 Earnings & Sales Beat Estimates, Decline Y/Y

Q4 Details

The company reported adjusted earnings of $3.96 per share in the quarter, which beat the Zacks Consensus Estimate of $3.77. However, the same declined 7.5% from the year-ago quarter’s figure of $4.28.

This jewelery retailer generated total revenues of $2,154.7 million that came ahead of the Zacks Consensus Estimate of $2,142 million but tumbled 6% year over year. On a constant-currency basis, revenues decreased 5.4%.

Per management, sales were negatively impacted by dismal same-store sales performance, unfavourable currency, impacts stemming from calendar shifts and store closures that offset benefits from the application of new revenue recognition accounting standards.

The company’s same-store sales declined 2% year over year. E-commerce sales came in at $260.6 million, up 5.4% on a year-over-year basis. We note that e-commerce accounted for 12.1% of total sales in the quarter.

Adjusted gross profit decreased 4.7% to $876.8 million, while gross margin expanded 60 basis points (bps) to 40.7%. Adjusted selling, general and administrative expenses (SG&A) were up 0.3% to $636.2 million in the quarter. Adjusted operating income came in at $241.3 million, down 25.4% from $323.5 million in the year-ago quarter, owing to reduced sales, increased promotions and clearance, headwinds related to outsourcing of credit, and charges from unproductive inventory. Adjusted operating margin contracted 290 bps to 11.2% in the reported quarter.

Segment Discussion

Sales at the North America segment decreased 5.5% on a reported basis (or 5.3% at constant currency basis) to $1,942.9 million. Same store sales fell 1.4% owing to shift in timing of promotional activities at Zales and Peoples along with negative impact from timing shift of service plan revenues. Average transaction value rose 2.2%, whereas the number of transactions decreased 4.0% during the reported quarter.

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Further, same-store sales increased 2% and 17.1% in Zales and Piercing Pagoda, respectively, while the same declined 1.6%, 8.4% and 1.4% in Kay, Jared and James Allen segments, respectively.

Sales at the International segment declined 16.6% to $195 million on a reported basis and 12% on a constant-currency basis. Same-store sales at the segment declined 7.3%. Average transaction value fell 5.4%, while the number of transactions declined 2.3%. Dismal same-store sales performance mainly stemmed from lower sales of bridal and fashion jewellery, and fashion watches, which were partially offset by higher prestige watch sales.

Financial Details

Signet ended the quarter with cash and cash equivalents of $195.4 million, net accounts receivable of $19.5 million and inventories worth $2,386.9 million. Long-term debt and total shareholders’ equity were $649.6 million and $1,201.6 million, respectively.

The company has repurchased 8.8 million shares worth approximately $485 million in fiscal 2019. As of Feb 2, 2019, the company was left with share repurchase authorization of $165.6 million.

Store Update

Signet opened 40 stores and shuttered 262 during fiscal 2019. The company plans to open approximately 20-25 stores and close more than 150 in fiscal 2020. As of Feb 2, the company operated 3,334 stores.

Signet Jewelers Limited Price, Consensus and EPS Surprise

Guidance

Management provided guidance for the first quarter and fiscal 2020. For the first quarter, the company projects adjusted loss of 17-28 cents a share. The current Zacks Consensus Estimate for the quarter is pegged at a loss of 6 cents. The company expects sales $1.42-$1.44 billion, while same-store sales is anticipated to decline between 0.5% and 1.5%.

In fiscal 2020, the company intends to focus on enhancing product assortment and differentiation along with increasing investment in digital and social marketing. Apart from these, Signet will work toward improving customer’s shopping experience by upgrading its websites and mobile platforms. This, in turn, will help the company deliver double-digit e-commerce growth. On the flip side, the fiscal year is expected to face headwinds in legacy brands.

Signet anticipates earnings per share between $2.87 and $3.45 in fiscal 2020. The Zacks Consensus Estimate for fiscal 2020 is pegged at $3.53. Sales are projected to be $6-$6.1 billion, while same-store sales is likely to be flat to down 2.5% due to expected sluggishness in Jared and James Allen brands. Additionally, capital expenditure for the fiscal is expected to be $135-$155 million.

In March 2018, the company announced its three-year Path to Brilliance transformation plan. In this regard, Signet is on track with its cost-containment efforts that include procurement savings in merchandise and indirect spend, headcount reduction, consolidation of facilities, and reduction in corporate expenses.

Keeping along these lines, the company continues to anticipate net cost savings of $60-$70 million during fiscal 2020. The company continues to anticipate cost savings of $200-$225 million from the transformation plan during the 2019-2021 period, out of which $85 million has already been realized in fiscal 2019.

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