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Time for Signet to Deliver on Bridal


As always, Signet Jewelers provided some important insights into the state of the US jewelry market in its fiscal first quarter report and conference call on Thursday, June 13.  

 

  • The first takeaway is that sales fell 9% year on year to $1.5 billion and same-store sales declined 8.9% for the three months ended May 4. While that was within guidance, it was the weakest first quarter since Covid. That’s hardly encouraging for the industry, considering Signet is the largest seller of jewelry in the US.

 

  • Net profit dropped 47% to $52.1 million. Gross margin (operating profit) declined 9% to $572 million, representing a 38% margin of sales – consistent with a year earlier.


Based on reports by Signet Jewelers.


  • On a positive note, the company expects same-store sales to turn positive in the second half of the year, already reflected in its full year guidance, which remained unchanged.  

 

  • Signet shares slumped about 17% since the earnings announcement as its outlook for the second quarter was below analysts’ expectations, according to Yahoo Finance.

 

  • Management spoke about pressure from promotional activity among independent jewelers who have been “significantly over-inventoried” during the past 18 months. That may ease as inventory levels are returning to more normal levels, although the company cautioned that heightened competitive discounting may pressure margins more than previously expected in the back half.  

 

  • Signet has shifted its lab-grown strategy away from bridal and toward fashion jewelry. There, it sees a “trade-up” opportunity, meaning it can upsell customers to larger carat sizes or better color / clarity diamonds at more affordable price points.

 

  • CEO Gina Drosos noted a 14% rise in Signet’s lab-grown revenue in the fashion category, as these pieces carry more than twice the average transaction value of non-lab-grown diamond fashion pieces.

 

  • Signet continues to expect an acceleration in couples getting engaged resulting from the lull in dating experienced during the pandemic. It predicts a 5% to 10% increase in engagements this year. That should give its bridal business a boost.

 

  • That said, one would have thought the bridal boom should have begun over the holiday season and be evident in the first quarter that just passed. Rather, Signet’s bridal category fell 11% and 12% year on year in those respective periods.

 

  • That may be the result of price pressure from its competitors. The company’s average transaction value fell 1.6% in North America due mainly to softness in its highest price points. Its volume of merchandise transactions fell 8% during the period.

 

Signet is putting some weight on its post-Covid engagement lag theory. It will need to deliver in its bridal business in the second half, given the extent to which it has talked-up the anticipated engagement boom. That places even greater emphasis on its collaboration with De Beers to promote natural diamonds and train its sales representatives about the virtues of the product. (See my video on the partnership here). 

 

I didn’t see too many surprises in Signet’s first quarter results – certainly not enough to knock about $400 million off its market value. We’ll leave it to research analysts and investors to assess whether the share is a buy, hold, or sell at these levels.


For the industry, Signet continues to present a cautionary view of the US market; one in desperate need of a boost to its core bridal sector.  


Image credit: A Diamonds Direct store (Signet Jewelers)

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