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Signet Jewelers' (SIG -21%) holiday sales trends fell short, leading the jewelry retailer to cut its Q4 (Jan) revenue forecast by roughly $93 mln when taking the midpoint. SIG now anticipates final quarter revenue of $2.320-2.335 bln, translating to an approximately 7% drop yr/yr and marking SIG's ninth consecutive quarter of yr/yr sales compression. Meanwhile, total same-store sales decreased by around -2% during the season, driving SIG's slashed Q4 comp outlook to negative 2.0-2.5% versus its previous flat to +3% target.

• What went wrong? Consumers gravitated toward lower price points more than SIG anticipated during the holidays, flocking to many of the company's lower-priced rivals. For instance, Costco (COST) mentioned last week that non-food items enjoyed high teen percentage growth in December, with jewelry being among the better-performing categories.
• Last month, SIG noted that it had room to engage in some promotional activity to defend against competitive pressures, adding that its initial Q4 guidance, which met analyst expectations, provided enough flexibility within its view of gross margins. Unfortunately, SIG stated today that merchandise assortment gaps were apparent across critical gifting price points during the holidays, hindering its ability to lure enough customers to boost sales.
• There were a few silver linings from the holiday season. For example, SIG's Engagement and Service division saw sales trends meet expectations. Furthermore, average unit retail ticked higher across Bridal and Fashion businesses, edging 5% higher overall. However, CEO J.K. Symancyk, who took over in November following Virginia Drosos's retirement, conceded that SIG could do better, adding that meaningful potential has yet to be uncovered.

With shares tracking near two-year lows, the question now is where SIG goes from here to reengage investors. The company is operating at a time when lower-priced merchants are scooping up customers, and close peers, such as Pandora (PANDY), continuously conduct the right moves to deliver growth despite a challenging economic environment. For instance, Pandora posted 8% like-for-like growth during the first nine months of 2024 versus SIG's -4.6% comp growth over that same period despite lapping a much more favorable -12.6% comp in the year-ago period.

Falling short of expectations during December, which tends to see twice the number of engagements compared to every other month, is a troubling setback, especially since it can often provide much-needed momentum heading into the new year. Without this wind at its back, SIG may need to lean more on promotions going forward to reenergize its top line. However, this can squeeze profitability, bottlenecking earnings upside in future quarters unless SIG turns to aggressive cost-cutting. Meanwhile, even though inflationary pressures have not reaccelerated, their cumulative effects are weighing on the consumer, which could ultimately cause SIG to struggle to dazzle investors over the near term.