Signet’s Big Earnings Beat Increased Its Shares

Key takeaways

On August 30, Signet Jewelers (SIG) shares were trading ~15% higher during the pre-market session following the company’s stronger-than-expected second fiscal quarter results for the period ending on August 4. The company sustained the growth momentum in sales—an encouraging sign given the persistent operational issues. However, the biggest positive was the company’s “big beat” on the earnings front.

Signet Jewelers reported a positive earnings surprise of ~160%—a massive beat due to the considerable decline in the adjusted effective tax rate. The company’s adjusted effective tax rate was 6.5% in the second fiscal quarter—compared to 23.5% during the same period in 2017. The company’s share repurchases cushioned the EPS.

Signet’s Big Earnings Beat Increased Its Shares

Given the improving trend in the underlying business, Signet’s management raised the fiscal sales and EPS outlook, which should lift investors’ confidence. Earlier, Tiffany (TIF) increased its fiscal EPS guidance due to its healthy second-quarter results.

Second-quarter performance

Signet Jewelers reported net sales of $1.4 billion, which beat analysts’ estimate of $1.3 billion and increased 1.5% YoY (year-over-year). The same-store-sales or comps increased 1.7%, which reflected a planned shift in the timing of promotions at the Jared banner and new products. Clearance sales contributed 240 basis points to the comps growth rate. The expected the number of transactions declined, which reflected credit outsourcing.

The company reported an adjusted EPS of $0.52, which beat analysts’ projections. Analysts expected Signet Jewelers to report an adjusted EPS of $0.20 in the second fiscal quarter.

Management remains upbeat and expects the comps to decline 1.5% or stay flat in fiscal 2018. The expectations compare favorably to the company’s earlier guidance of a low to mid-single-digit decline. Signet Jewelers expects its adjusted EPS to be $4.05–$4.40 in fiscal 2019—up from its earlier guidance of $3.75–$4.25.

Signet Jewelers’ underlying business is improving. However, operational issues related to credit portfolio outsourcing will likely hurt the in-store transactions in the third fiscal quarter.