It has been about a month since the last earnings report for Signet (SIG). Shares have lost about 20.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Signet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Signet’s Q4 Earnings and Sales Beat Estimates
Signet posted better-than-expected fourth-quarter fiscal 2020 results. Impressively, the quarter marked its ninth consecutive sales beat. Also, the company witnessed solid growth in its same-store sales and e-commerce business. Margins were also impressive in the reported quarter.
Moreover, Signet accomplished cost reduction of roughly $100 million, thus outpaced its cost-saving target for fiscal 2020. Management cited that the momentum the company experienced during the holiday season has continued while going into fiscal 2021.
However, March-to-date performance saw higher impact of coronavirus pandemic, compelling management to shutter all its retail stores. Consequently, it has not issued fiscal 2021 outlook. Also, Signet has temporarily suspended its dividend program, but will pay the May quarterly dividend on its preference shares in kind.
Q4 in Detail
The company reported adjusted earnings of $3.67 per share, which outshined the Zacks Consensus Estimate of $3.47. However, the figure declined 7.3% from the year-ago quarter.
This jewelry retailer generated total revenues of $2,153.3 million that surpassed the Zacks Consensus Estimate of $2,122 million. However, the top line dipped 0.1% year over year and 0.3% on a constant-currency (cc) basis. Nevertheless, the company’s same-store sales increased 2.3% year over year.
Meanwhile, e-commerce sales grew 15.1% from the prior-year quarter to $299.9 million. Markedly, e-commerce constituted 13.9% of total sales, up from 12.1% recorded in the year-ago quarter. Brick-and-mortar same-store sales inched up 0.5% year-over-year. Further, North America payment plan participation rate with both the credit and leasing sales was 47%, down from 50.1% in the year-ago quarter.
Adjusted gross profit rose 2.8% to $901.3 million, while adjusted gross margin expanded 120 basis points (bps) to 41.9%, driven by robust cost savings from transformation efforts.
However, adjusted selling, general & administrative expenses dipped 0.3% from the prior-year period to $633.2 million in the quarter. As a rate of sales, the metric leveraged 60 bps to 29.4%.
The company posted adjusted operating profit of $270.3 million, up nearly 12% from the year-ago quarter. Also, adjusted operating margin grew 140 bps to 12.6%, on higher gross margin and lower SG&A.
Segment Discussion
Sales at the North America segment grew 0.6% on a reported basis (or 0.5% at cc) to $1,953.8 million. Same-store sales increased 2.9% from the year-ago period, owing to solid performance of Zales, Peoples and Piercing Pagoda brands and growth across all mall-based banners.
Moreover, the segment’s e-commerce sales grew 15% and brick-and-mortar same-store sales rose 1.1%. Its average transaction value (“ATV”) dipped 0.5% while the number of transactions grew 3.4% in higher conversion in-store.
Further, same-store sales rose 5.9% at Zales, 0.6% at Kay, 7.7% at Piercing Pagoda, 3.3% at Peoples and 32.6% at James Allen. Meanwhile, the metric declined 7.5% and 2% at Regional banners and Jared, respectively.
Sales at the International segment declined 4.5% on a reported basis and 6.3% at cc to $186.2 million. Same-store sales at the segment dipped 3.1% year over year, with e-commerce sales rise of 15.8%, compensated with brick-and-mortar same-store sales decrease of 5.8%. Further, ATV increased 1.6%, while number of transactions fell 4.6%. Dismal same-store sales performance mainly stemmed from softness across categories and a tough operating environment in the U.K.
Financial Details
Signet ended the quarter with cash and cash equivalents of $374.5 million, accounts receivable of $38.8 million and net inventories of $2,331.7 million. Long-term debt was $515.9 million and total shareholders’ equity was $1,222.6 million at the end of the quarter.
During fiscal 2020, the company generated net cash of $555.7 million from operating activities. It had free cash flow of $419.4 million at the end of the fiscal year. As of Feb 1, 2020, Signet operated nearly 3,200 stores.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -61.7% due to these changes.
VGM Scores
Currently, Signet has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Signet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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