reporting a surprise profit, better than expected sales, and slimmer than
expected same store sales declines, shares of diamond jewelry retailer Signet
Jewelers (SIG 52.732, +8.582, +19.44%) trade higher.
There wasn’t much to not like about Signet’s first quarter performance, so let’s jump right in. Earnings of $0.10/share were markedly better than Street views of a modest loss. Further, the company’s 5% sales growth to $1.48 bln and slimmer than expected same store sales declines of 0.1% add fuel to the fire that pushes SIG shares to four-month highs today.
Gross profit was $484.8 mln, or 32.7% of sales, down 230 basis
points and included a 60 bps unfavorable impact related to James Allen, which
carries a lower gross margin rate. Additional factors which impacted Signet’s
gross margin rate were:
1) A negative 70 bps impact related to the discontinuation of credit insurance
2) A negative 50 bps impact from higher year over year bad debt expense
3) A negative 20 bps due primarily to calendar shifts of promotions into the first quarter
4) A negative 10 bps impact related to adopting new revenue recognition accounting standards.
The company said that it saw signs of stabilization in the first quarter and registered another quarter of double digit growth in eCommerce. Looking ahead, the company expects second quarter revenues to be impacted by a tougher prior year same store sales comparison and calendar shifts. Signet maintains their full year 2019 guidance and is intensely focused on laying the foundation to support improved performance in the holiday season.
North America was once again a bright spot for Signet with same store sales up 0.6% in the period, with average transaction value increasing 5.0% and the number of transactions declining (2.9%). Same store sales were positively impacted by 95 bps due to James Allen sales growth and 195 bps due to a planned shift in timing of promotions. Same store sales were negatively impacted by 115 bps as a result of credit outsourcing transition issues. Same store sales increased at Zales and Piercing Pagoda by 8.9% and 7.2% respectively. Kay same store sales decreased (1.9%), including 430 bps benefit from a planned shift in timing of promotions. Jared same store sales decreased (7.8%), including a negative impact of 180 bps due to a planned shift in the timing of promotions.
International same store sales dipped (6.7%), with ATV increasing 2.9% and the number of transactions decreasing (8.3%). The same store sales decline was driven by lower sales in diamond jewelry and fashion watches, partially offset by higher sales in prestige watches and eCommerce.
As to guidance Signet sees second quarter earnings of $0.05-0.20/ share on revenues between $1.30-1.35 bln and same store sales down mid-single digit percentage. What’s more the company also reaffirmed fiscal 2019 guidance, a sign that management still has confidence in the previously announced transformation plan, to the tune of EPS between $3.75-4.25 and revenues in the range of $5.9-6.1 bln with same store sales down low to mid-single digit percentage.
Signet also announced two executive appointments as part of the previously mentioned transformation under its Path to Brilliance plan. Mary Elizabeth Finn has been named Chief People Officer and Stephen Lovejoy has been named Chief Supply Chain Officer, effective immediately.
After being beaten down during the past several months, down about 22% YTD ahead of the results, bears take a breather as signs that the transformation plan may be gaining credence surface in the form of reaffirmed guidance. Shares are still a far cry from all-time highs north of $150/share back in the Fall of 2015, and this quarter’s results allow investors to wipe away a bit of the tears.