Signet Jewelers (SIG): Here’s a look at the headwinds and tailwinds this jewelery retailer faces

Shares of Signet Jewelers Ltd. (NYSE: SIG) have gained 52% over the last 12 months and 9% over the past one month. The company delivered better-than-expected results for its fourth quarter of 2022 last week and provided an upbeat guidance for the upcoming year. Here’s a look at the headwinds and tailwinds in front of the jewelry retailer as it moves into its next fiscal year:

Tailwinds

Revenues in Q4 2022 increased 28.6% year-over-year to $2.8 billion. The growth was broad-based across all banners and categories reflecting the success of the company’s connected commerce efforts. Adjusted EPS was $5.01, up from $4.15 in the year-ago quarter.

Sales in North America increased nearly 27% from the year-ago quarter. On its quarterly conference call, Signet stated that it grew its market share in the US to 9.3%, up 270 basis points YoY, with share growth in every channel and banner. Signet is a leader in the bridal category with a share of around 30% and it is strengthening its position in the fast-growing lab-created diamonds category.

With the easing down of the pandemic, there is a rebound in weddings and more couples are getting married. Signet expects to see more weddings this year than it has over the past four years. This opens up opportunities for not just the sales of engagement rings and wedding bands for couples but also jewelry for family and friends. It also paves the way for future growth as there is a greater likelihood of dating couples who attend a wedding together getting engaged shortly afterwards.

The company has a strong supply chain which will help it weather inflationary pressures and protect margins. Signet is a site holder with De Beers and it has a proprietary online diamond marketplace through James Allen. This helps the company buy rough diamonds directly and gives it a pricing advantage.

Signet has seven manufacturing facilities in India and a cut and polish manufacturing facility in Botswana. As a whole, the company grew its production capacity by tenfold last year. All these factors give Signet a competitive edge over its rivals. The company believes it is well positioned to continue gaining market share and delivering double-digit operating margins.

Another growth driver is digital commerce, which includes ecommerce. Signet has doubled its ecommerce sales over the past two years and it has grown more than threefold since the company began its Path to Brilliance transformation. With over $1.5 billion in ecommerce sales, Signet is now the largest online specialty jewelry retailer in the US.

Headwinds

The biggest headwind at present is inflation. Inflationary pressures can take a toll on discretionary purchases. Signet anticipates a shift in consumer spending towards entertainment and travel. People who have been putting off their travel or wedding plans are going ahead with them and they are willing to spend more on what they value most. Signet believes it is well positioned to mitigate the effects of these challenges and take advantage of the current trend.

Outlook

Looking ahead to fiscal year 2023, Signet expects growth in the industry to normalize. Sales for the overall jewelry industry is expected to be down low-single digits to roughly flat. Signet expects total revenue to range between $8.03 billion to $8.25 billion for FY2023 while EPS is estimated to be $12.28-13.00. For the first quarter of 2023, revenue is estimated to be $1.78-1.82 billion.

Click here to read the full transcript of Signet Jewelers’ Q4 2022 earnings conference call