Shares of Signet Jewelers (SIG) are up 20% testing resistance in the low-to-mid $60s after the company reported better than expected second quarter results and raised EPS guidance for the year.
Same store sales rose 1.4%, driven by e-commerce platform improvements, Mother's Day performance and timing, effective marketing and bridal promotion initiatives. This is a notable improvement from the -11.5% comp from the first quarter. Comps fell 2.3% in last year's second quarter.
Excluding non-recurring items, EPS was $1.25 vs $1.06 last year, reflecting disciplined cost management and early benefits from strategic decision to outsource the credit portfolio. Signet also announced the acquisition of R2Net to enhance digital capabilities and further accelerate its OmniChannel strategy. R2Net owns JamesAllen.com, an online jeweler, as well as Segoma Imaging Technologies, who provides R2Net machines to enable delivery of next-generation digital shopping experience for jewelry. Signet paid $328 million in cash and anticipates the transaction to be accretive in the first full year of operations.
Investors are encouraged by the upbeat report and fresh direction under new CEO Gina Drosos, who took over at the beginning of the month after serving as an independent director on the Board since 2012.
Some 25% of the Signet float is sold short. The company has faced a number of controversies since merging with Zales a few years ago, as well as slowing sales more recently. This led to both the COO and CEO stepping down this Summer.
On the call, Gina Drosos said the company will be more aggressive with promotions to capture market share, which will pressure gross margins.
Signet reiterated its Fiscal 2018 SSS guidance (down low-mid single-digit range) and raised EPS EPS guidance to $7.16-7.56 from $7.00-7.40 to reflect anticipated benefits of the strategic outsourcing of its credit portfolio, partially offset by chief executive officer separation costs and anticipated transaction costs associated with the announcement of the acquisition of R2Net.
Signet repurchased 12% of the shares outstanding in an accelerated open market share repurchase during the quarter.
Signet has a ~$4.4 billion market cap and trades at ~9x earnings estimates.