Signet Jewelers Posts In-Line Q4 Earnings, Guides for FY17

Signet Jewelers Limited SIG reported in-line earnings for the fourth-quarter of fiscal 2016 after missing estimates in the previous quarter. The company’s earnings came in at $3.63 per share. However, the bottom line of this jewelry retailer increased 18.6% year over year.

Signet posted total sales of $2,392.6 million in the reported quarter, up 5.3% from the prior-year quarter. The upside was driven by growth in same store sales. However, the top line fell short of the Zacks Consensus Estimate of $2,423 million.

Quarterly Highlights

For the fiscal fourth quarter, comparable-store sales (comps) climbed 4.9%, mainly driven by higher diamond fashion jewelry sales. E-Commerce sales came at $166.3 million, up 11.2% on a year-over-year basis.

By division, sales at the Sterling Jewelers Division grew 6.9% to $1,452.5 million on the back of strong performance by diamond fashion jewelry.

Sales at the Zale Division inched up 2.9% to $655.1 million. This increase was driven by higher sales Piercing Pagoda. Sales in the U.K. division rose 1.7% to $282.6 million mainly driven by increase in sales of diamond jewelry as well as prestige watches.

Gross profit jumped 11.4% to $1,016 million, while gross margin expanded 240 basis points (bps) to 42.5%. Operating income was $393.1 million, up 18.5%. Operating margin expanded 180 bps to 16.4%.

Other Details

Signet ended the fiscal quarter with cash and cash equivalents of $137.7 million, net receivables of $1,756.4 million and net inventories of $2,453.9 million. Long-term debt and total shareholders’ equity, as of Jan 30, 2016, were $1,328.7 million and $3,060.7 million, respectively.

In fiscal 2016, Signet bought back 1,018,568 shares at an average price of $127.63 per share. As of Jan 30, 2016, the company had $135.6 million worth of shares remaining under its repurchase authorization. On Feb 29, 2016, the company’s board of directors sanctioned a $750 million program with no expiry date.

As of Jan 30, 2016, the company operated 3,122 stores in the U.S. and 503 outlets in the U.K., thereby taking the total store count to 3,625.

Guidance

Signet projects first-quarter fiscal 2017 adjusted earnings in the range of $1.90 to $1.95 per share. The current Zacks Consensus Estimate for first-quarter fiscal 2017 is currently pegged at $1.96 per share but may witness downward revision in the coming days.

For fiscal 2017, Signet expects comparable sales growth in the range of 3–4.5%. The company projects adjusted earnings per share in the band of $8.25 to $8.55. The company expects capital expenditure of $315 million to $365 million, which includes expenses related to Kay and Jared outlets, store remodeling, enhancing digital and information technology infrastructure. Further, the company expects to deliver net synergies of $158 million to $175 million is fiscal 2017.

Zacks Rank

Signet currently holds a Zacks Rank #2 (Buy). Other favorably placed retail stocks include American Eagle Outfitters, Inc. AEO, Express Inc. EXPR and Abercrombie & Fitch Co. ANF. While American Eagle Outfitters and Express sport a Zacks Rank #1 (Strong Buy), Abercrombie & Fitch holds a Zacks Rank #2 (Buy).

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