Categories Analysis, Consumer

Signet Jewelers (SIG): A look at how the jewelry retailer is navigating a challenging environment

EPS is expected to be $9.49-10.09 in FY2024

Shares of Signet Jewelers Limited (NYSE: SIG) were down 4% on Friday. The stock has dropped 16% over the past three months. A day ago, the company reported first quarter 2024 earnings results that were down compared to last year but managed to surpass expectations. It also lowered its guidance for the full year as it expects headwinds to persist. Here’s a look at how the jewelry retailer is navigating this tough environment:

Lower sales and profits

In Q1 2024, Signet’s sales decreased 9.3% year-over-year to $1.7 billion and its comparable sales fell 13.9%. Adjusted EPS of $1.78 was down 38% from last year. Despite the declines, both the top and bottom line numbers surpassed Street projections.  

Headwinds

As predicted earlier, Signet saw fewer engagements during the first quarter. Engagements declined low double digits and contrary to expectations, the average transaction value did not grow. Factors such as the ongoing inflationary environment, concerns caused by regional bank failures, and lower tax refunds led to a greater-than-expected drop in spending across the jewelry industry. In the fashion segment, along with the continued pressure at lower price points, the company began to see declines at its higher price points as well during the quarter.

Lowered guidance

Signet expects the macro environment to remain challenging and consumer spending to remain pressured throughout the fiscal year, which led it to lower its guidance. The company now expects total sales for FY2024 to range between $7.10-7.30 billion compared to its previous outlook of $7.67-7.84 billion. EPS is now expected to be $9.49-10.09 versus the prior range of $11.07-11.59.

Signet expects annual US jewelry industry revenues to decline more than its initial expectations of mid-single-digits due to economic pressures and the shift in consumer discretionary spend. The headwinds in engagements are expected to continue with a recovery anticipated later in FY2024 followed by a rebound in FY2025.

Growth strategy

Signet continues to invest in its banner portfolio, its services business and its digital capabilities to drive growth against a tough backdrop. In Q1, the services business grew over 5% compared to the same period last year, helped materially by the company’s extended service agreements. The improvements made in custom and repair helped drive a growth of 340 basis points in service margin.

The company is also seeing growth in its loyalty program. As stated on its quarterly conference call, its efforts in making enrolment smoother has helped drive a 50% increase in members during the quarter. Loyalty members are more frequent purchasers and have a 20% higher spend than non-loyalty members.

Signet’s investments in digital continue to pay off. The addition of new features such as improvements to online merchandise, appointment booking, and services is expected to help drive growth. Through these investments, the company aims to develop a competitive edge and capture market share.

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