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Why Signet (SIG) Jewelers Shares Fell After Q3 Earnings Miss

After delivering positive surprises for five consecutive quarters, Signet Jewelers LimitedSIG disappointed with lower-than-expected results for the third quarter of fiscal 2016. Shares of this jewelry retailer are down 3.7% since the company reported fiscal third-quarter results on Nov 24.

The company posted adjusted quarterly earnings of 33 cents a share that compared unfavorably with the Zacks Consensus Estimate of 38 cents. Earnings were affected by a modest margin due to a sales mix shift from its Jared brand to the Kay brand.

Signet Jewelers Limited (SIG) - Earnings Surprise | FindTheCompany

However, fiscal third-quarter earnings increased 57.1% from 21 cents reported in the prior-year quarter. Including one-time items, earnings came in at 19 cents per share. In the prior-year quarter, the company had incurred a loss of 2 cents.

Signet posted total sales of $1,216.4 million in the reported quarter, up 3.3% from the prior-year quarter driven by growth in same store sales. However, the top line fell short of the Zacks Consensus Estimate of $1,240 million.

Quarterly Highlights

For the fiscal third quarter, comparable-store sales (comps) climbed 3.3% against an increase of 4.2% in the prior-year quarter. Comps were driven by branded bridal sales across all store banners together with higher sales in the company's Kay brand. E-Commerce sales came at $50.5 million, up 12.7% on a year-over-year basis.

By division, sales at the Sterling Jewelers Division grew 5.9% to $733.5 million on the back of strong performance by the bridal brands and select diamond jewelry in the company's Kay brand.

Sales at the Zale Division decreased 0.5% to $329.9 million. However, sales increased 2.4% on a constant currency basis. This increase was driven by higher sales at branded bridal collections and Piercing Pagoda.

Sales in the U.K. division decreased 1.1% to $149.4 million mainly due to foreign currency headwinds. However, sales increased 4.9% on a constant currency basis on the back of strong performance by the diamond jewelry and watches collections.

Gross profit increased 6.3% to $367.7 million while gross margin expanded 80 basis points (bps) to 30.2%. Operating income was $33.6 million, up 214% while operating margin expanded 190 bps to 2.8%.

Other Details

Signet ended the fiscal quarter with cash and cash equivalents of $77.2 million, net receivables of $1,451.5 million and net inventories of $2,727 million. Long-term debt and total shareholders' equity, as of Oct 31, 2015, were $1,338.7 million and $2,845 million, respectively.

In the fiscal third quarter, Signet bought back 239,370 shares at an average price of $125.33 per share. As of Oct 31, 2015, the company had $153.7 million worth of shares remaining under its repurchase authorization.

As of Oct 31, 2015, the company operated 3,118 stores in the U.S. and 500 outlets in the U.K., thereby bringing the total store count to 3,618.

Guidance

Signet now projects fiscal fourth-quarter 2016 adjusted earnings in the range of $3.40 to $3.60 per share. The current Zacks Consensus Estimate for fiscal fourth-quarter 2016 of $3.56 per share lies within the company's guidance range. For the fourth quarter, comps are expected to increase 3.5-5%.

For fiscal 2016, Signet expects capital expenditure of $260 million to $280 million, which includes expenses related to the launch of Kay and Jared outlets, store remodeling, enhancing digital and information technology infrastructure. Further, the company expects to deliver net synergies of $30 million to $35 million is fiscal 2016.

Zacks Rank

Signet currently carries a Zacks Rank #3 (Hold). Some better-ranked retail stocks that look promising are American Eagle Outfitters, Inc. AEO , Foot Locker, Inc. FL and Genesco Inc. GCO . While American Eagle Outfitters sports a Zacks Rank #1 (Strong Buy), Foot Locker and Genesco hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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