Earnings Preview: Signet Jewelers to report Q4 results amidst weak holiday sales

Jewelry retailer Signet Jewelers (SIG) is reporting its fourth quarter 2019 results tomorrow before the market opens. The company rescheduled its Q4 earnings report to April from the earlier announced March 14, as it needs more time to record an impairment charge for the fiscal 2019 period. Since it’s a non-cash charge, there wouldn’t be any impact on the cash flows.

Signet has been facing a lot of tailwinds this year. In January, Sterling Jewelers, part of Signet, was fined $11 million for deceiving customers to enroll in its credit card and insurance program. The company plans to record this charge in the Q4 period.

The jewelry retailer’s stock dropped above 20% on January 17 when it announced disappointing holiday season sales. For the nine-week period, Signet reported a drop in same-store sales of 1.3% over the same period last year. The drop in sales was attributed to declining sales, intense competition, lower footfalls during December gifting week, and increasing credit costs.

Commenting on lower comp-store sales, CEO Virginia Drosos stated, “We will move decisively to improve profitability through aggressively optimizing our cost structure and continuing to right-size our store base, as well as more effectively managing our inventory.”

Muted Guidance

As a result of muted holiday season numbers, Signet also revised downwards the outlook for the Q4 period and fiscal 2019 period. The retailer now expects Q4 same-store sales to decrease in the range of 1.6% to 2.5%. Sales is forecasted to be between $2.14 billion to $2.16 billion and adjusted EPS of $3.77 to $3.92.

For the Q4 period, analysts are expecting Signet to report EPS of $3.82, down 10% over last year. Revenue is estimated to decrease 6.5% over last year to $2.14 billion.

For the fiscal 2019 period, revenue is anticipated to come in at $6.24 billion to $6.26 billion and adjusted earnings of $3.53 to $3.69 per share. Comp-store sales for the fiscal period is expected to be flat compared to prior guidance of flat to 1% increase.

The street is expecting Signet to report earnings of $3.57 per share for the fiscal year, down 45% from the prior year period. Revenue is forecasted to see a modest decline of 0.2% to $6.24 billion.

Transformation Plan

Last month, Signet announced that Joan Hilson will be replacing Michele Santana as CFO effective April 4, 2019. Hilson will be spearheading the Path to Brilliance transformation plan. In addition, the firm also made a few leadership changes.

In the first quarter, the jewelry retailer launched the transformation plan to make Signet as a leader in the omnichannel jewelry domain. The three-year plan is expected to have pre-tax charges of $170 million to $190 million. Of the total charges, $80 million to $95 million would be cash charges. Cost savings from the plan is touted to be in the range of $200 million to $225.

In the last reported quarter, Signet bottom line missed analysts’ expectations. Net loss increased to $38.1 million or $0.74 per share from $12.1 million or $0.20 per share last year. The adjusted loss widened to $1.06 per share from $0.20 per share in the prior year period. Sales rose 3% to $1.19 billion, aided by same-store sales growth, new revenue recognition accounting standards, and the addition of James Allen.

Shares of the diamond jewelry retailer are down nearly 12% this year and about 28% in the last 12 months.

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