Of late, shares of Signet Jewelers Limited SIG are riding high on better-than-expected second-quarter fiscal 2018 results, R2Net buyout and strategic initiatives. Ever since this Zacks Rank #1 (Strong Buy) company reported quarterly numbers on Aug 24, its shares have gained nearly 26.6%, outperforming the industry 's advance of 5.2%. Signet exhibits a VGM Score of A and has a long-term earnings growth rate of 7.5%, making us confident of its inherent strength. Let's delve deeper.
Signet reported robust financial numbers in second-quarter fiscal 2018, after missing both top and bottom lines in the preceding quarter. Notably, this marked the second time in the past eleven quarters, wherein sales surpassed the Zacks Consensus Estimate. Moreover, management now envisions earnings per share in the band of $7.16-$7.56 for fiscal 2018 compared with the previous estimate of $7.00-$7.40.
The company is improving digital marketing efforts and made changes to organizational structure. It had earlier announced that it will divest $1 billion of prime-only credit quality accounts receivable to Alliance Data Systems Corporation, as a part of its plan to outsource its in-house credit program.
Recently, the company completed the buyout of R2Net, which owns popular online jewelry retailer, JamesAllen.com, as well as Segoma Imaging Technologies that enhances digital shopping experience. This $328 million buyout will combine Signet's retail jewelry business with R2Net's solid digital operations.
This move is in sync with Signet's omni-channel transformation. The company is also focusing on building e-commerce platform as the retail landscape has been undergoing a fundamental change in recent years, with technology leaving a deep and lasting impact on the space. Online shopping dominates the space now with its effective grip steadily taking over the minds of consumers. This shift in buying behavior has forced retailers to come up with new ways to market products.
The buyout will drive Signet revenues by nearly $80-$90 million, while same store sales will be positively impacted by 130-140 basis points in fiscal 2018. However, R2Net contribution to earnings per share will be neutral in fiscal 2018. The company expects the buyout to be accretive to the company's EPS in the first year of operations. R2Net will be an independent division under Signet.
The company is striving hard to position itself on growth trajectory. It will invest between $260 million and $275 million toward opening of new Kay off-mall stores, remodeling, information and technology advancement as well as toward augmenting distribution facilities.
3 Retail Stocks Hogging the Limelight
Top-ranked stocks, which warrant a look in the retail sector includes, Costco Wholesale Corporation COST , Big Lots, Inc. BIG and Burlington Stores, Inc. BURL . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Costco Wholesale has an impressive long-term earnings growth rate of 9.5%.
Big Lots delivered an average positive earnings surprise of 81.1% in the trailing four quarters.
Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing three quarters and has a long-term earnings growth rate of 16.2%.
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