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What’s behind Signet’s Sharp Stock Decline?

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Stock is down 43% on a YTD basis

Like most retailers, Signet Jewelers (SIG) is having a tough time. Beginning with weak holiday sales last year and a disappointing start to the current fiscal year, the company’s problem doesn’t seem to be abating. On a YTD (year-to-date) basis, Signet stock has fallen ~43% as of June 6, 2017, making it one of the worst performers among S&P 500 (SPX) stocks.

In comparison, rival Tiffany (TIF) has outperformed Signet both in terms of stock price gains and sales. On a YTD basis, Tiffany stock has risen 18%. During the same period, the S&P 500 Index and the Consumer Discretionary Select Sector SPDR Fund (XLY) have returned 9% and 12%, respectively.

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A challenging retail landscape and weak consumer spending are taking a toll on jewelers. Despite challenges, Tiffany has managed to increase its sales in the last three quarters, but at a dismal rate. On the contrary, Signet’s top line witnessed a fall in the past four quarters, pulling its stock down.

Is a recovery in the cards?

Signet’s management reiterated its guidance for fiscal 2018 despite starting the current fiscal year on a soft note. Management stated that despite the decline across most of the merchandise categories during the first quarter of fiscal 2018, the company is witnessing significant progress across its store brands and merchandise categories.

Signet is projected to report a decline in same-store sales for fiscal 2018 as macro headwinds and lower transactions driven by weak consumer spending and a decline in mall traffic are likely to remain a drag. Moreover, increased competition will further pressure sales and margins growth.

Also, several brokerage firms have lowered their target price estimates on the stock, which doesn’t sit well with investors.

Series overview

In this series, we’ll focus on Signet Jewelers’ sales and profitability. We’ll also discuss the company’s outlook, valuations, and analyst recommendations for the stock.

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