Despite showing a continued decline in sales for the second quarter, Signet Jewelers' stock surged yesterday. This may seem counterintuitive, as same-store sales dropped by 3.4% and total sales fell by 7.6% during the quarter ending on August 3. However, the decline in same-store sales was smaller than in recent quarters (8% in Q1).
According to the company, the more crucial news is that Q3 same-store sales have turned positive thus far. Signet shared this during a post-earnings call with analysts, suggesting the tide may be turning.
“We’re seeing strong momentum in same-store sales growth, largely driven by the strength in our fashion business and improved customer engagement,” said Joan Hilson, Chief Financial, Strategy, and Services Officer at Signet. “Despite the promotional pressures within the industry, we’ve raised our merchandise margin by 120 basis points, and the average transaction value has grown by 1.6%. We are on track to meet our fiscal year 2025 outlook.”
Industry analyst Paul Zimnisky noted that Signet’s stock tends to be volatile, making it difficult for Wall Street to settle on its valuation. He believes traders responded positively to favorable indicators from the call, particularly around improving same-store sales and engagement ring purchases.
CEO Gina Drosos added that after a pandemic-induced slump in engagements, the company is finally seeing a rise in proposals. Drosos emphasized that Google and Instagram searches for engagement rings have increased significantly in recent months. She noted that the number of couples preparing for engagement is at its highest since Signet began tracking this milestone a few years ago.
However, Drosos did mention that consumer caution is slowing down the recovery: “In this macro environment, customers are being more cautious about their involvement.”
The call also heavily discussed lab-grown diamonds (LGDs). Drosos highlighted that lab-grown diamond fashion jewelry has continued to grow, with sales up over 25% compared to last year, which has contributed to higher average transaction values.
On the downside, Drosos acknowledged that the declining market prices of LGDs have impacted their digital banners, Blue Nile and James Allen, which have a substantial share in the wedding diamond segment and a high penetration of synthetic diamonds.
Hilson pointed out that Signet usually counters LGD competition with its branded products and maintains a balance in its offerings, ensuring high-priced natural diamonds remain prominent in the assortment.
Signet's penetration of lab-grown products has now reached the "mid-teen" percentage range. Hilson also mentioned that the company's partnership with De Beers, announced in May, to promote natural diamonds is expected to bear fruit soon.
“We’re launching our first creative campaign targeted at younger consumers, focusing on the positive aspects of natural diamonds,” she added. “It’s important to remember that two-thirds of consumers still prefer natural diamonds. That’s why we’ve also rolled out a store-wide training program on natural diamonds, ensuring nearly 100% of staff will complete it ahead of the holiday season.”
In other segments, Drosos noted that services have continued to be a significant growth driver, up 1.4% this quarter. Additionally, she observed momentum in the watch segment, highlighting new designs from Citizen and Bulova.
Despite job cuts at the company's Ohio office, Hilson clarified that affected employees made up less than 1% of the workforce. Signet expects to save $200 million this year, though most of these savings are unrelated to workforce reductions.
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