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Signet Stock Drops Over 14% on Weak Q1 Performance

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Jun. 9 2020, Updated 10:11 a.m. ET

Signet Jewelers (NYSE:SIG) stock dropped over 14% in the morning trade following the company’s weak performance in the first quarter of fiscal 2021. Markets largely expected Signet’s sales and profitability to a hit in the first quarter due to the COVID-19 pandemic. However, the company’s sales were below analysts’ estimates, which irked investors.

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Signet’s Q1 performance

Signet Jewelers reported revenues of $852.1 million in the first quarter. The revenues fell more than 40% on a year-over-year basis. Temporary store closures due to COVID-19 took a toll on the company’s top line. Also, the company’s revenues fell short of Wall Street’s expectation of $861.7 million.

Signet’s same-store sales fell 38.9%, which reflected a 39% decline in North America and a 37.5% decrease in international markets. The average transaction value and the number of transactions declined by 6.5% and 34.5%, respectively, in North America. Meanwhile, the number of transactions fell 41.2% in the international segment. However, the average transaction value increased by 2.7%.

While store sales fell, Signet’s e-commerce channel showed growth. The company’s e-commerce sales increased by 6.7% during the first quarter, including the impact of COVID-19. Excluding the effects of the temporary shutdown of James Allen’s distribution center, Signet’s e-commerce sales grew 18.2%.

Signet reported an adjusted operating loss of $142.5 million compared to the adjusted operating income of $24.2 million in the first quarter of fiscal 2020. While reduced costs following temporary pay cuts and lower advertising expenses supported the company’s operating income, lower sales and deleveraging of fixed costs remained a drag.

Signet reported an adjusted loss per share of $1.59 compared to the EPS of $0.08 in the first quarter of fiscal 2020.

Stock’s outlook

With stores gradually reopening and the transition to an omnichannel model, Signet’s sales could recover some in the coming quarters. However, Signet Jewelers’ top line could continue to stay low in the coming quarters, which reflects a decline in the number of store transactions and permanent store closures. Also, Signet’s margins could also remain muted, which reflects the deleveraging of fixed costs due to the lower sales.

Shares of Signet Jewelers have underperformed the broader markets over the last three years. Meanwhile, the shares could still be under pressure in the short term. An uncertain economic outlook and a spike in the unemployment rate could continue to be a drag on Signet stock.

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