Signet Jewelers (SIG) is down 27% at a three-month low after the company missed third quarter estimates and lowered earnings guidance for the year.
Same store sales fell 5.0%, including an estimated 120 basis point negative impact due to weather-related incidents and systems and process disruptions associated with outsourcing of the credit portfolio. Signet missed same store sales estimates by ~200 basis points.
Signet reported a third quarter loss per share of $0.20, including ($0.25) per share in net transaction costs related to the first phase of strategic credit outsourcing and the R2Net acquisition, and ($0.10) due to weather-related incidents and credit outsourcing disruptions.
"Signet had a challenging third quarter. In addition to an anticipated sequential slowdown in our same store sales, unfavorable weather-related incidents, along with unexpected disruptions during the transition of our credit services, further negatively impacted results."
On October 23, 2017, Signet completed the first phase of strategic outsourcing of its credit portfolio to Alliance Data Systems and Genesis Financial Solutions. As part of the first phase, Alliance Data acquired the prime credit quality portion of Signet's existing credit portfolio and became the primary provider of credit to Signet's customers, while the credit servicing functions of the non-prime book has been outsourced to Genesis.
Signet is experiencing greater than anticipated disruptions related to the complex credit transition process. Signet and its credit partners are working with great urgency to resolve these issues, and while the critical majority of the systems-related issues have been identified and restored, the Company expects the financial impact to carry forward into the fourth quarter given the significant changes to the credit-related processes.
As a result, Signet now expects Fiscal 2018 SSS to be down a mid single-digit percentage and EPS to be in the range of $6.10 and $6.50. Prior guidance called for EPS of $7.16-7.56 with SSS down low to mid single-digits.
Signet guided for fourth quarter same store sales to be down low- to mid-single digits. Estimates were looking for a flat comp in the fourth quarter versus a 4.5% decline last year.
The Company is in advanced discussions with interested funding partners related to the second phase of its credit outsourcing, which is expected to be completed in the first half of calendar year 2018.
Shares of SIG are attempting to find support near the $55 level this session. The stock trades at less than 9x earnings estimates.