Signet Earnings Sparkle As Company Pivots Toward Online Sales

Signet Jewelers NYSE: SIG is trading at its best levels since October 2018. The stock has soared to a year-to-date return of 109.42% and a one-year return of 637.86%. 

It closed Monday at $57.11 after slipping 6.32% in the session. 

What’s going on with the big run-up? Investors are accustomed to tech stocks and makers of electric vehicles rallying higher at a blistering pace. 

But a company that operates jewelry stores in malls? Even before the Covid-19 pandemic, malls and brick-and-mortar retailers were in trouble. In fact, Signet’s earnings fell in 2018 and 2019, when other mall-based retailers were beginning to suffer.

The company delivered its fiscal 2021 fourth-quarter earnings on March 19, reporting net income of $4.15 per share, a 13% gain over the year-ago quarter. That trounced expectations of $3.54 per share.

Revenue came in at $2.2 billion, topping forecasts of $2.1 billion. Same-store sales grew 7%, while e-commerce sales were the diamond in the rough, with more than 70% growth. 

The company operates brands including Zales, Kay Jewelers, Piercing Pagoda, and Jared. 

Thriving In A Changing Environment

In the earnings call, CEO Gina Drosos said the bridal and fashion businesses were strong. She specifically addressed the recent quarters, as well as challenges the company faced in recent years. 

“Our ability to pivot successfully through the pandemic and to deliver the back half performance that our team delivered is rewarding, especially as I look back at what we've achieved in the past three years,” she said. 

She added, “In 2016 and '17, the company was losing share to smaller specialty jewelry stores, to non-specialty retailers, and to online and pure-play digital retailers. The industry was changing fast and customer expectations for quality, service, value, and personal engagement were constantly increasing.”

She noted that the company had to pivot to address an environment that was changing on many fronts and that Signet has become much more data-driven, allowing it to better identify customers and address their needs. 

She emphasized that point, sharing an example of Kay Jewelers, the largest advertiser among Signet’s brands. Kay’s television advertising spending has been slashed in half over the past three years, while spending on online marketing more than doubled. 

“This change in mix has been data driven,” said Drosos.

“We know with the precision we didn't have three years ago, which media provide the best incremental return to make media spend more efficient,” she added.

Greater operational efficiencies in recent years, including cutting expenses and reducing the number of stores, also contributed to the bottom-line results.

Strong Earnings Expectations 

On March 15, Telsey Advisory Group raised its price target from $45 to $60, giving Signet a “market perform” rating. 

For the current quarter, analysts expect earnings of $0.49 per share on revenue of $1.39 billion. Both those numbers, if met, would represent year-over-year gains. 

For the full year of fiscal 2022, the consensus earnings estimate calls for $3.92 per share, a 94% year-over-year increase. For 2023, that number is $4.31, an increase of 10%.

As a luxury retailer with a substantial shopping mall presence, Signet took it on the chin during the great 2020 Covid-driven market meltdown. The stock gapped down 33% the week ended March 13 2020, and followed with a 45% gap-down the following week. 

The stock stumbled a bit in its attempts to climb out of that correction, but as always, a sharp pullback set the stage for fresh money to eventually come in and push the price higher. 

One cautionary note: Although the stock notched gains in 10 of the past 12 months, upside volume has been rather tepid, finishing below average in eight of those months. That’s not ideal, as large turnover indicates strong institutional support, which can result in bigger gains. 

Monday’s pullback gave the stock its first close beneath its 10-day line since February 17. It’s holding 21.9% above its 50-day average. The stock had definitely become frothy, and a  pullback at this point, with support at or above that 50-day line, could offer investors a chance to purchase shares or add to a position.