Signet Jewelers Stock Poised for Rebound After Earnings Drop

Key Points

• Despite beating earnings estimates, Signet Jewelers (SIG) stock fell after reporting on June 13, 2024.
• An 8.9% drop in same-store sales from the previous year contributed to this fall.
• Upside remains in the stock due to encouraging signs for the future and avenues for growth.

Signet Jewelers NYSE: SIG is a diamond jewelry retailer. It operates several well-known brands, such as Kay Jewelers, Jared, and Zales. The firm posted fiscal year Q1 2025 earnings on Thursday, June 13th. Despite handily beating earnings estimates, the stock price cratered. The firm reported an earnings per share (EPS) of $1.11 versus the consensus estimate of $0.82. However, by the close on Friday last week, the shares had fallen nearly 20%. Currently, three analysts rate the stock a buy, and two rate it a hold, with an implied upside of 30%. Let’s look at the reasons why Signet shares fell and explore whether or not now is a buying opportunity. 

Signet Jewelers’ Same-Store Sales Decline: Impact on Stock

Despite beating EPS estimates, Signet Jewelers fell substantially. One culprit for this is that same-store sales were down 8.9% compared to fiscal Q1 2024. Same-store sales are a particularly important metric for retail businesses because it indicates a firm’s ability to generate recurring revenue from already established stores rather than from opening new stores. Revenue from existing stores is more sustainable than new stores, which often get a temporary boost from their initial entrance into an untapped market. Despite the market being disappointed by the number, it fell well within the firm's guidance of an 11% to 7% drop in same-store sales. Total sales, operating income, and adjusted EBITDA all fell close to within the midpoint of their guidance as well.

Another potential reason for the fall in the stock price is that in the quarterly conference call, Chief Financial Officer Joan Hilson stated that the firm is sensing there will be more pressure on margins this year than previously thought. This is due to promotional pricing within the industry, which could force Signet to do the same to keep prices competitive. 

Some may also consider that Signet’s revenue dropped by over 39% from the last quarter. However, this is a seasonal pattern that repeats when going from the last quarter of the previous year into the first quarter of the next year and should be expected. 

Positive EPS Guidance: Signet's Financial Outlook Improves

Several encouraging signs are present for Signet. First, the company reaffirmed the increase in its fiscal full-year EPS guidance that it reported in April. The guidance was raised from a midpoint of $9.78 to a midpoint of $10.71. Regarding same-store sales, the firm expects those numbers to rebound in the second half of the year. 

Additionally, new data shows that the number of Americans getting married is rebounding from its pandemic lows. This is a key indicator for Signet since an increase in marriages boosts the demand for their diamonds and jewelry. In 2020, 5.1 out of every 1000 Americans decided to tie the knot. That number grew to 6.2 out of 1000 by 2022, marking the first year marriages in the U.S. exceeded 2 million since 2019. Signet believes engagement rates will increase 5%-10% over the year compared to last.

Signet is still finding new avenues for growth, which is especially important as it operates in a mature industry. This mainly comes within its “fashion” segment, which is comprised of more affordable jewelry products than wedding rings. Sales in this segment were up 5% from the previous quarter. Signet is growing this market through its loyalty program, in which membership increased 25% from last year, and through growing its lab-created diamond (LCD) business. 

Lab-created diamonds are indistinguishable from natural diamonds to the naked eye. The rapid progression of the technologies used to create them means they now cost 40%-50% less than mined diamonds. It is estimated that the LCD market will grow 9.6% annually from 2023-2032. Signet grew this part of the business by 14% from last year.

Market Reaction vs. Positive Indicators: Analyzing Signet's Future

The market reacted negatively to Signet’s earnings release despite falling in line with the firm's estimates. When looking at the multiple positive indicators and avenues for growth that should support the firm in the future, it's possible the decline in Signet's share price was unwarranted. Overall, there seems to be a solid upside in the stock, a sentiment that most analysts covering the firm agree with.