Here’s why Signet Jewellers (SIG) is confident about its long-term growth opportunity

Shares of Signet Jewelers Limited (NYSE: SIG) were up 5% on Wednesday. The stock has gained 32% over the past three months. A day ago, the company delivered better-than-expected earnings results for the third quarter of 2023 and hiked its guidance for the full year. Despite the challenging macroeconomic environment, the retailer remains confident in its growth potential over the long term due to the nature of its business and the strategy it is pursuing.

Resilience of jewelry

On its quarterly conference call, Signet laid out how jewelry differs from other parts of retail in terms of resilience and value. Unlike cyclical industries like apparel which are more sensitive to economic volatility, have lower value and tend to fall in the discretionary category, jewelry is not subject to frequent fashion changes and it retains or appreciates its value over time.

In addition, although jewelry does come under the discretionary category, it is associated with important life events and special occasions which means people are not likely to hold back spending on them if needed.

Signet continues to see success in bridal. Bridal remains the most important segment in fine jewelry not only because of its value but also because it helps in the establishment of long-term relationships with customers who are likely to come back for future purchases.

In the third quarter, 35% of new customers made their first purchase at Signet through bridal. Also, over the past three years, the company has seen nearly a third of bridal engagement customers return for subsequent non-engagement purchases, wedding bands, fashion jewelry and gifts, reflecting a higher repurchase rate of over 40% versus non-bridal customers.

Another advantage is that bridal is not cyclical, meaning engagements, weddings and anniversaries happen consistently time after time. Signet has added 22.5 million new customers since FY2019 and its customer base is much stronger than it was five years ago with younger, more affluent and more digitally-savvy customers. The company continues to improve its digital capabilities and offerings to cater to these customers.

Another area of strategic focus is services. Signet sees services as a $1 billion business over time and it is making progress towards this goal. The company is seeing success with its loyalty program Vault Rewards with 1 million members in just a year. Loyalty members are spending 40% more per repeat purchase than non-loyalty customers on average and they are making their second purchases 25% faster.

Signet also simplified its offerings in repair with bundles that combine typical repair services. Currently 65% of paid repairs are part of a bundle, which is encouraging because bundles drive margins and provide further opportunity for growth.

Q3 results beat and raised outlook

In Q3 2023, Signet’s total sales increased 2.9% year-over-year to $1.6 billion and surpassed estimates. Adjusted EPS of $0.74 was down from last year but managed to exceed expectations. Same-store sales fell 7.6% due to consumer behavior shifts and macroeconomic pressure.

Looking ahead into the full year, Signet expects customers to continue purchasing at higher price points and it anticipates the strength in its assortment units to persist. At the same time, the company also expects economic pressures to continue. Signet increased its full year 2023 guidance and now expects total sales of $7.77-7.84 billion and EPS of $11.40-12.00. This compares to the previous outlook for sales of $7.60-7.70 and EPS of $10.98-11.57.

Click here to read the full transcript of Signet’s Q3 2023 earnings conference call