Signet Jewelers earnings preview: Watch out for headwinds in Q1

Jewelry retailer Signet Jewelers (SIG) is scheduled to report its earnings results for the first quarter of fiscal 2020 on Thursday before the market opens. The results will be hurt by impairment charges, stores closure, workforce shrinking and halting of buybacks. The company continued to face certain long-term headwinds that will make long-term success a difficult struggle.

The same-store sales are likely to include the favorable impacts of incremental clearance and the planned shifts in the timing of promotions at Zales and Peoples. It could also include an unfavorable impact related to a timing shift of service plan revenue. Over the past several years, the company’s results were impacted by high expenses and contracting comparable sales.

The company remained stuck in the middle of a few changes within its own business climate as the management has recognized the business has too many employees and stores. Signet’s management has planned to correct this by store closure and job cuts as comparable sales were lower due to higher expenses and ineffective stores. In the past several years, the company has downsized its workforce and closed stores that still continues today with more stores set to close this year.

Analysts expect the company to report a loss of $0.22 per share on revenue of $1.42 billion for the first quarter. In comparison, during the previous year quarter, Signet Jewelers posted a profit of $0.10 per share on revenue of $1.48 billion.

The company has surprised investors by beating analysts’ expectations in the past four quarters. It is expected that Signet Jewelers could report upbeat results for the first quarter of fiscal 2020. Majority of analysts recommended a “hold” rating while expecting the price target to reach $26.83 per share in the next 52 weeks.

Also read: United Natural Foods Q3 earnings preview

For the fourth quarter of 2019, Signet Jewelers slipped to a loss from a profit last year, due to higher costs and expenses. Same-store sales declined by 1.4% in North America and by 7.3% in International. The same store sales performance included the favorable impacts of about 60 bps related to incremental clearance and about 35 bps due to planned shifts in the timing of promotions at Zales and Peoples.

The same-store sales for the fourth quarter also included a 25 bps unfavorable impact related to a timing shift of service plan revenue recognized as a result of the historical claims experience shifting away from the earlier years of the service plans to later years of the coverage period.

eCommerce sales in the quarter grew 5.4%, with the eCommerce sales accounted for 12.1% of fourth-quarter sales. Brick and mortar same-store sales slipped 3% in the period.

For fiscal 2020, the company expects earnings in the range of $1.86 to $2.66 per share and adjusted earnings in the range of $2.87 to $3.45 per share. While maintaining a quarterly dividend of 37 cents a share, Signet expects same-store sales to be down 2.5% to flat, and total sales to be between $6.0 billion to $6.1 billion.

Shares of Signet Jewelers opened higher on Tuesday and is trading in the green territory on the NYSE. The stock has fallen over 53% in the past year and over 30% in the past three months.

Get access to timely and accurate verbatim transcripts that are published within hours of the event.