Signet's Cost Savings, Digital Efforts Aid Amid Hurdles

Signet Jewelers Limited SIG has demonstrated resilience and strategic foresight in navigating market challenges, while driving growth through innovation and sustainability. The company's focus areas include cost-saving measures, digital platform enhancement, product offerings, loyalty programs, fleet optimization, and market positioning to drive growth and profitability.

This Zacks Rank #3 (Hold) player's shares have gained 34.9% in the past year compared with the industry's 16% growth.

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Delving Deeper

Signet has implemented strategic cost-saving measures to achieve $350 million in total cost reductions. The company's efforts are concentrated on optimizing inventory, managing markdowns, enhancing sourcing efficiencies and leveraging technology. In the first quarter of fiscal 2025, Signet successfully lowered its adjusted SG&A expenses by $9 million year over year despite increased marketing spending for Mother's Day.

Enhancing the digital platform is crucial for improving customer experience and driving online sales growth. As e-commerce becomes increasingly vital in retail, Signet leverages proprietary data on 17 million individuals in dating relationships to conduct targeted marketing, especially to boost bridal recovery. This data-driven strategy is expected to increase U.S. engagements by 5-10% for fiscal 2025, indicating a robust sales pipeline. The strategic use of data ensures effective market capture and customer satisfaction.

Signet has undertaken fleet optimization efforts to improve performance and margins, particularly in the U.K., by closing 23 stores in the first quarter and reducing overhead costs in the Ernest Jones banner. Additionally, inventory management is being optimized by clearing less productive, lower-margin products and introducing higher-margin, more relevant merchandise.

Signet's new fashion product offerings have driven a 500-basis-point increase in fashion sales from the fourth quarter of fiscal 2024, with key collections like the Shy Collection at Jared and Unstoppable Love at Kay boosting revenues and maintaining transaction values. Lab-created diamond fashion pieces and precious metal jewelry saw a 14% revenue increase from the year-ago quarter. Additionally, the loyalty program expansion increased active loyalty members purchasing fashion by 20 points in the first quarter of fiscal 2025 and grew total membership by 25% since fiscal 2024.

Competitive Advantages

Signet's partnership with De Beers aims to enhance sales team training and improve customer interactions by highlighting the uniqueness of natural diamonds. This partnership includes marketing efforts to educate consumers about the differences between natural and lab-created diamonds, strengthening Signet's market position.

Additionally, the introduction of social selling capabilities for jewelry consultants is expected to triple revenue contribution in fiscal 2025, adding 0.5 points to comp growth in fiscal 2024. Capital expenditure is estimated between $160 million and $180 million for fiscal 2024, focusing on store openings, renovations, and digital and technology advancements.

What's More?

Despite the overall positive performance, a significant downturn was evident in the North American and International segments. Sales in North America fell 9% year over year to $1.4 billion in the first quarter, with a 1.6% dip in average transaction value and a drop in transaction volume leading to a 9.2% decrease in same-store sales. International sales decreased 17% to $77.2 million due to a 15.3% ATV reduction from the sale of prestige watch stores and fewer transactions, causing a 3.2% same-store sales drop.

Signet remains cautious about the uncertain macro environment, particularly as consumer awareness about discretionary spending heightens during the peak holiday season. For the second quarter of fiscal 2025, Signet anticipates total sales of $1.46-$1.52 billion, which implies a decline from $1.61 billion reported in the second quarter of fiscal 2024. For fiscal 2025, Signet expects total sales of $6.66-$7.02 billion, which implies a decline from $7.17 billion reported in fiscal 2024. However, the company's efforts to reduce costs and enhance operational efficiency should help it battle the hurdles.

The Zacks Consensus Estimate for the current year's sales is pegged at $6.80 billion, suggesting a year-over-year decline of 5.2%. However, the Zacks Consensus Estimate for earnings per share is pegged at $10.60, suggesting year-over-year growth of 2.2%.

Key Picks

Some better-ranked stocks in the retail space are The Gap, Inc., Abercrombie & Fitch Co. and Canada Goose GOOS.

Gap is a premier international specialty retailer that offers a diverse range of clothing, accessories and personal care products. It currently sports a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for Gap's fiscal 2024 earnings and sales indicates growth of 21.7% and 0.2%, respectively, from fiscal 2023 reported figures. GPS has a trailing four-quarter average earnings surprise of 202.7%.

Abercrombie is a specialty retailer of premium, high-quality casual apparel. It flaunts a Zacks Rank of 1 at present. ANF delivered a 28.9% earnings surprise in the last quarter.

The consensus estimate for Abercrombie's fiscal 2024 earnings and sales indicates growth of 47.3% and 10.4%, respectively, from the fiscal 2023 levels. ANF has a trailing four-quarter average earnings surprise of 210.3%.

Canada Goose is a global outerwear brand. It currently sports a Zacks Rank of 1.

The Zacks Consensus Estimate for Canada Goose's fiscal 2025 earnings and sales indicates growth of 13.7% and 5.2% from the year-ago actuals. GOOS has a trailing four-quarter average earnings surprise of 70.9%.

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