4Q18 summary and outlook
Signet Jewelers (SIG) reported better-than-expected fiscal 4Q18 results on March 14. The company’s sales and EPS (earnings per share) were ahead of analysts’ expectations and improved on a YoY (year-over-year) basis. On a comparable basis—excluding the impact of one extra week and increased sales from the R2Net acquisition—Signet’s top line declined and was lower than analysts’ estimate.
Lower transactions due to credit portfolio outsourcing and increased sales of low-margin products continue to hurt Signet’s margins.
Signet’s tepid performance will likely continue in fiscal 2019 due to its restructuring plan. Signet expects its fiscal 2019 sales and EPS to mark a YoY decline. The company’s top line is expected to take a hit from lower sales at its Kay and Jared banners, which reflects the operational issues from its credit portfolio outsourcing. A reduction in net selling space due to store closures remains a drag. Meanwhile, Signet’s EPS is projected to fall, which reflects lower sales and a negative mix.
Signet announced a new three-year restructuring plan to drive sustainable long-term growth. The company plans to generate significant cost savings through store closures. Signet plans to close 200 underperforming stores in fiscal 2019. Signet will focus on innovation-led product launches and expand its omnichannel presence. Signet announced the second phase of its credit portfolio outsourcing and agreed to sell its non-prime receivables to investment funds managed by CarVal Investors.
However, investors remain wary because Signet’s transformational plan entails significant costs and operational issues, which could hurt its financials.
Stock fell more than 20%
Following the company’s 4Q18 results and sluggish outlook, investors dumped Signet Jewelers stock. The company’s stock fell more than 20% on March 14, 2017. On a YTD (year-to-date) basis, Signet stock has fallen ~32.4% as of March 14, 2018. Given the near-term challenges, the company’s stock will likely remain pressured.
In comparison, Tiffany’s (TIF) stock is also trading in the red and witnessed a YTD decline of 2.8%.