Despite waning same store sales at both Sterling Jewlers and Zales, shares of Signet Jewlers (SIG 69.48, +5.08) trade about 7.9% higher today in light of the Q4 earnings beat.
Before getting into the results, let’s take a quick look at SIG. The majority of SIG’s business begins with Kay. Kay Jewlers boasted more than 1,100 stores as of the end of January, 2016 with sales declines of 1.4% among those marked as same store sales. Also among SIG’s brands are Jared, Zales, Gordons, Piercing Pagoda and H.Samuel. Same store sales were down at all these brands, begging the question, exactly what is wrong with the specialty jewelry industry?
Before answering that, we have to understand what happened this period. To that end, SIG reported Q4 earnings which came in ahead of market expectations, and in-line with the company’s own lowered guidance, at $4.03. Revenues for the period were down about 5.2% compared to a year ago to $2.27 billion with same store sales declines of 4.5% compared to an increase of 4.9% in the fourth quarter Fiscal 2016.
Among the worst SSS declines were Sterling Jewelers', which saw SSS dip 4.9%, Zale Jewelry's which posted SSS declines of 5.2%, and the UK Jewelry's SSS decreased 3.8%. Despite average transaction value for each segment posting an increase, results were negatively impacted by the number of transactions which came through in Q4.
E-commerce sales for Q4 were $161.8 million, down $4.5 million or 2.7% compared to $166.3 million last year. The decline in e-commerce sales was primarily attributed to technical performance issues during the holiday period.
Additionally, in light of the company’s recent wishes to not provide quarterly guidance, SIG gave a more long term outlook. At this time, they feel the financial impact of Mother's Day will be solely in the second quarter impact. This timing is unfavorable to sales and EPS in the first quarter and favorable to sales and EPS in the second quarter. The amount of the shift is expected to be about 300 to 350 basis points to SSS and $0.12 to $0.15 EPS from Q1 to Q2. Further, they noted the additional week, January 28, 2018 - February 3, 2018, will be accretive to Q4 total sales by about $75 million. Also, the additional week will have an immaterial EPS impact to fourth quarter due to the cadence of planned Valentine's Day marketing and promotions.
In addition to the above guidance, SIG plans to close 165 to 170 stores in Fiscal 2018 and open 90 to 115 stores for a net selling square footage change of flat to a decline of 1%. Store closures are primarily focused on mall-based regional brands not meeting Signet's financial return expectations. Store openings will be primarily Kay off-mall.
As SIG adapts to the challenging retail environment that touches not only apparel, but specialty retail as well, it appears the answer to the question posed before is simply – nothing. There’s not much the matter with SIG at the moment, aside from the typical retail challenges facing the overall space, namely less foot traffic. When that happens, numbers inevitably will suffer unless a company has a sterling mobile/e-commerce platform, which SIG does not as of yet. And yet, investors appear to have rewarded shares today following the print as perhaps expectations were much worse than the period came out to show.