After reporting declining Holiday sales and updating guidance to reflect recent tax reforms, shares of Signet Jewelers (SIG 52.63, -3.96 -7.0%) give back a portion of December gains.
The guidance appears to be getting the most attention today as SIG updated EPS and other metrics to include the impact from the recent passage of U.S. tax reform. The company anticipates the reduction in the U.S. corporate income tax rate to result in an effective tax rate in the range of 14% to 15% for its current fiscal year. Excluding the estimated benefit of U.S. tax reform, the company expects Fiscal 2018 EPS within its previous guidance range.
The company also updated EPS guidance for FY2018; including the U.S. Tax Reform impact, management sees EPS of $6.45-6.50 while excluding the impact, EPS guidance for the full year sits at $6.17-6.22 (from prior guidance of $6.10-6.50).
SIG’s SSS guidance for the full year remains unchanged at down mid-single digit percentage.
The company currently estimates the deferred tax impact of U.S. tax reform to result in a one-time non-cash benefit currently estimated in the range of $35-45 million that will be recorded in 4Q2018. This is estimated to add between $0.50-0.67 to EPS in the fourth quarter and for the full year 2018.
As far as the Holiday 2018 Season, the jeweler which owns Zales, Jared, Kay, and Piercing Pagoda reported total sales of $1.89 billion. This result was about 3.1% lower compared to last year as same-store sales declined 5.3%, mostly due to weakness in the Sterling business, and impacted predominantly by the credit outsourcing transition which accounted for about two-thirds of the decrease.
Further, SIG’s eCommerce sales were up 47.7% to about $210.5 million mostly due to the Sterling division, reflecting the R2Net acquisition and the successful implementation of several enhancements to its OmniChannel platforms, search efficacy, functionality, and digital and social media marketing.
By category, SIG’s Zale division was positive driven by innovation and newness in assortment, including Enchanted Disney, Vera Wang Love, solitaires and fancy cut diamonds, supported by targeted marketing and promotional strategies, but offset by softness in Sterling division, particularly Kay bridal sales in stores, primarily due to the credit transition.
The Fashion category delivered sales growth in Zale division, reflecting strengthened product assortment in key price points and leading trends such as stacking and layering and yellow gold.
Additionally, the UK Jewelry division sales declined due principally to bridal and diamond fashion jewelry, partially offset by higher sales in select prestige watch brands and strength in eCommerce.
SIG's Holiday sales result seems to be pressuring a company which only a few months ago saw its stock gap nearly $20 lower in reaction to what at the time was unimpressive FY18 guidance...guidance which now seems even more mediocre. In late November, SIG reported worse than expected Q3 earnings and guided FY18 EPS under the Street views to reflect the impact of credit outsourcing disruptions. Following that report, SIG stock dipped to a multi-month low of $49.33 only a few sessions later but in December had steadily begun to recoup a portion of those losses.