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Signet (SIG) Q4 Earnings Surpass Estimates, Sales Down Y/Y

Signet Jewelers Limited SIG posted better-than-expected results for fourth-quarter fiscal 2023. Further, earnings increased year over year while sales declined from the year-ago fiscal quarter’s reading. Also, same-store sales dropped 9.1% from the year-earlier fiscal quarter’s reading.

This presently Zacks Rank #3 (Hold) player’s shares have increased 18.8% in the past six months compared with the industry’s 1.1% dip.

Quarterly Details

Signet reported adjusted earnings of $5.52 per share, beating the Zacks Consensus Estimate of $5.35. The bottom line increased 10.2% from $5.01 earned in the year-ago fiscal quarter.

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This jewelry retailer generated total sales of $2,666.2 million, ahead of the Zacks Consensus Estimate of $2,651 million. The top line dipped 5.2% from the prior-year fiscal quarter’s tally due to soft same-store sales. The metric declined 4.3% at constant currency. The quarter was adversely affected by the weather in the United States in the peak selling period before Christmas along with labor strikes and the impacts of the weakened British Pound in the UK.

A Sneak Peek Into Margins

The adjusted gross profit in the fiscal third quarter amounted to $1,109.3 million, down 4.2% from $1,157.8 million in the year-ago fiscal comparable quarter.

Adjusted SG&A expenses came in at $695.2 million, down 6.5% from $743.7 million in the prior fiscal year’s comparable quarter. SIG reported an adjusted operating income of $404.7 million, down 1.5% from $411 million recorded in the year-ago fiscal quarter. As a rate of sales, the adjusted operating margin increased 60 basis points to 15.2%.

 

Signet Jewelers Limited Price, Consensus and EPS Surprise

 

Signet Jewelers Limited price-consensus-eps-surprise-chart | Signet Jewelers Limited Quote

 

Segment Discussion

Sales in the North American segment fell 4% from the year-ago fiscal quarter’s number to $2.5 billion. Same-store sales tumbled 9.3% from the year-ago fiscal quarter’s levels reflecting higher average transaction values ("ATV"), which grew 3.9% and were offset by a lower number of transactions year over year.

Sales in the International segment dropped 16.5% from the year-earlier fiscal quarter’s reading to $153.2 million, hurt by labor strikes, volatility in the UK economy and $18.7 million with respect to the weakening of the British Pound. Same-store sales slipped 6.8% from the year-ago fiscal quarter’s tally, reflecting the impacts of increased ATVs and lower transactions.

Financial Details

Signet ended the fiscal fourth quarter with cash and cash equivalents of $1,166.8 million, accounts receivable of $14.5 million and inventories of $2,150.3 million. The long-term debt was $147.4 million at the end of the reported fiscal quarter. Total shareholders’ equity was $1,578.6 million at the end of the fiscal fourth quarter.

As of Jan 28, 2023, Signet generated net cash of $797.9 million from operating activities. SIG had an adjusted free cash flow of $659 million as of Jan 28, 2023.

Signet completed a shares buyback of $64.9 million in the fiscal fourth quarter. During fiscal 2023, it repurchased roughly 6.1 million shares for $426 million. On Mar 15, 2023, the company’s board approved a $263 million increase to the multi-year authorization under the share repurchase program. This brings the total remaining authorization to nearly $775 million and is net of roughly $25 million of shares bought back in fiscal 2024 to date. Management has declared a quarterly cash dividend of 23 cents per share for the first quarter of fiscal 2024.

We note that Signet had 2,800 stores as of Jan 28, 2023.

Guidance

Signet issued guidance for the first quarter and fiscal 2024, which is a 53-week fiscal year. For the first quarter, it projects total sales in the band of $1.62-$1.65 billion and adjusted operating income in the range of $97-$108 million.

For the fiscal year, it projects total sales in the band of $7.67-$7.84 billion, compared with $7.84 billion delivered in fiscal 2022. The adjusted operating income is anticipated in the range of $765-$800 million, versus $850.4 million recorded in the last fiscal year. Adjusted earnings per share (EPS) are envisioned in the bracket of $11.07-$11.59 compared with $11.80 earned in fiscal 2023.

Management expects capital investments of up to $200 million, with the investments in banner differentiation including stores, connected-commerce capabilities, and digital and technology upgrades.

The company’s guidance is based on assumptions, including the annual US Jewelry industry’s revenues are likely to decline in mid-single digits, persistent headwinds in engagements with recovery later in fiscal 2024, the slowing economy with the inflationary pressures and annual tax rate of around 19%. We note that bridal overall, inclusive of engagements, historically reflects nearly 47-49% of the company’s merchandise sales in the past five years.

It expects a certain shift in consumer discretionary spending from the jewelry category with the decelerating consumer confidence and pent-up demand for experience-oriented categories. SIG further anticipates the impacts of inflation and other macroeconomic factors to weigh on consumer spending. Signet’s initiatives to lower supply-chain hurdles have been effective so far and management does not expect any challenges in inventory availability.

Three Top Retail Stocks

We have highlighted three top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see tthe complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 82.6% in the last reported quarter.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.

Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.

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