Shares of Signet Jewelers (SIG, Financial) have surged 34.4% in the last year. With the increase in the consumer spending and the average income of the people, customers are willing to buy jewelry. This is probably the reason why the high end jewellers are witnessing higher sales, resulting in share price appreciation.
Signet Jewelers is, therefore, expanding its capabilities so that it can make the most of this growing trend. It reported a blockbuster quarter this time as the holiday season proved to be quite rewarding for the company. The numbers were ahead of the Street’s estimates, helping its shares to rise further. Let’s take a look.
The key drivers of the impressive quarter
The specialty retail jeweler mainly operates in the U.S. and the UK. It provides jewelry, watches and associated services to its customers, which has a great demand in the region. Revenue for the quarter was up by 45.5% over last year, clocking in at $2.28 billion. Although the top line registered a whopping increase, it was slightly below the analysts’ estimate of $2.32 billion.
One of the primary reasons for the increase in sales was the acquisition of Zale Corporation in May last year, which added to the top line of the company. However, it was not only the new business which led to higher sales. The same store sales growth came in at 4.2% for the quarter, as more customers got attracted to its flagship products. Also, the comparable store sales grew 4.6% for the Kay division and by 2.6% in the Jared division.
Sterling sales were also up, with an increase of average transaction price of 4.5%. This growth was mainly due to higher demand for high end diamond and bridal jewelry. The same store sales growth in the UK division registered the highest growth of 7.5%, as a new product addition lured customers to its stores.
Delving deeper
The e-commerce segment is also growing and sales in this category jumped to $149.6 million from $79 million last year. In fact, the company’s holiday sales at stores rose 3.6% in the month of January. Thus, it shows the growing interests of the customers.
The gross margin of the jeweler dropped to 40.1% from 41.5% in the previous year. Moreover, the earnings jumped to $2.84 per share as compared to $2.18 per share in the prior year. On an adjusted basis, earnings came in at $3.06 per share, higher than the estimate of $3.04 per share.
Some positives to be considered
The retailer’s acquisition of Zale Jewelers in May 2014 is expected to help further in expanding its existing business. Also, Signet Jewelers plans to expand its existing business by opening new stores. It will be opening 30 to 35 new Kay and Jared stores this year. Also, it plans to remodel the existing ones and spend an additional $80 million to $90 million on Zale’s IT infrastructure.
The specialty retailer also raised its quarterly dividend by 22% to $0.22 per share and repurchased shares during the quarter.
Winding it up
Signet Jewelers has been an exemplary performer this time. Its impressive numbers, plans for growth and an increase in dividend, impressed its investors. Moreover, it reaffirmed its guidance for the current year, wherein it expects same store sales to rise between 3% and 4% and bottom line to be in the range of $1.57 per share and $1.62 per share. This jeweler is definitely worth the money.
