Shares of Signet Jewelers LimitedSIG are not only underperforming the industry but also the overall sector . We note that the stock has inched up 1.7% in the past six months falling shy of the industry's rise of 18.1% and the sector's increase of 6.8% over the same period.
We note that waning same-store sales, contraction in margins and bleak view following first-quarter fiscal 2019 results, wherein the bottom line plunged year over year, are major concerns. However, this Zacks Rank #3 (Hold) company is augmenting its digital marketing efforts and making prudent capital investments to improve performance. Also, the three-year strategic initiatives under the 'Signet Path to Brilliance' plan look encouraging.
What Hurt the Stock?
The company anticipates fiscal 2019 earnings per share between $3.75 and $4.25 in comparison with the figure of $6.51 in the prior fiscal. Sales for the fiscal are still projected in the range of $5.9-$6.1 billion, reflecting a decline from $6.3 billion in fiscal 2018.
The company also issued the second-quarter fiscal 2019 guidance. Adjusted earnings per share are estimated in the band of 5-20 cents, compared with year-ago earnings of $1.33. Sales are projected in the range of $1.30-$1.35 billion, reflecting a decline from $1.40 billion a year ago.
Declining Same-Store Sales & Margins
Signet has disappointed investors with soft same-store sales performance in the trailing three quarters. In the first quarter of fiscal 2019, comps were down 0.1% following a decline of 5.2% and 5% in the fourth and third quarter of fiscal 2018, respectively. Further, management continues to expect same-store sales in fiscal 2019 to decline in the range of low to mid-single-digit, while for the fiscal second quarter the metric is expected to decline in the mid-single digits.
In fiscal 2018, same-store sales declined 5.3%. Per management, the decline in same-store sales and change in credit outsourcing model might dent operating profits.
Gross margin, an important metric that helps assess a company's financial health, has shown constant deceleration in the past few quarters. In first-quarter fiscal 2019, gross profit declined 1.3%, while gross margin contracted 200 basis points (bps) to 33%, following a decline of 160, 170,120 and 300 bps to 40.1%, 27.8%, 32.7% and 35% in the fourth, third, second and first quarter of fiscal 2018, respectively. Meanwhile, operating margin declined 660 bps to 1.6%.
Will Steps Help Lift Stock?
Signet is augmenting its digital marketing efforts. Further, the acquisition of R2Net, which owns popular online jewelry retailer - JamesAllen.com and Segoma Imaging Technologies - combined Signet's retail jewelry business with R2Net's solid digital operations. This move is in sync with Signet's omni-channel transformation.
This Hamilton, Bermuda-based company is not only focusing on double-digit growth in e-commerce but is also striving to achieve 15% of total sales in fiscal 2021, up from 8% in fiscal 2018. Further, the company is trying to make online shopping simpler for customers. Notably, the company has expressed plans to make it easy for customers to sign into Kay, Zales and Jared websites by using Google and Facebook credentials.
In an effort to drive growth in the long run, Signet earlier announced strategic initiatives under the 'Signet Path to Brilliance' plan, which will continue for the next three years. Notably, the company's three-year strategic initiatives aim to attain cost effectiveness. A portion of this cost savings will be used to invest in growth initiatives, which include eCommerce development, OmniChannel capabilities and product innovation.
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