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Signet Shares Rally as 2Q Sales, Profit Beat Expectations

Aug 27, 2015 11:31 AM   By Rapaport News
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RAPAPORT... Shares of Signet Jewelers jumped more than 10 percent Thursday morning  in New York after the jewelry retailer beat expectations in its second quarter earnings report.

“With the flurry of global market noise, we believe a market share leader, in an e-commerce protected operation, focusing on a U.S. centric customer is a very compelling proposition,” wrote Simeon Segal, an analyst at Nomura, reiterating his buy recommendation for the shares. “We continue to believe Signet remains one of the most compelling growth stories in retail and suggest accumulating at current levels.”

Signet reported that sales grew 15 percent to $1.4 billion during the three months ending August 1, driven by its acquisition of Zale Corporation which took place halfway through the same quarter last year. Same-store sales grew 4.2 percent while net income rose 7 percent.

The company noted that its performance was driven by higher average transaction prices and lower commodity costs.

Mark Light, Signet’s CEO, explained that lower gold and platinum prices had a greater impact on lowering costs than recent reductions in diamond prices. He noted that polished diamonds which Signet source have been less affected than VS-clarity and better diamonds which are popular in Asian and Middle East markets.

Still, the group’s gross margin improved to 34.8 percent of sales compared with 33.4 percent of sales a year earlier. Cost of sales rose 13 percent to $919.8 million. Light added that the company is beginning to see the benefit net synergies from its Zale acquisition.

Higher prices also helped drive Signet’s performance with the average price at its U.S. Sterling division up 4.2 percent while the number of transactions fell 2.5 percent. Sales at Sterling, which includes Kay Jewelers, Jared and its regional brands, rose 6 percent to $858.5 million with strength reported in bridal and diamond jewelry. Signet noted similar positive trends in branded bridal and branded diamond fashion merchandise at the Zale division, which notched up sales of $389.3 million, up 57 percent from last years’ sales under the Signet banner. UK jewelers, including H. Samuel and Ernest Jones saw sales decrease 2 percent to $159.1 million.

The company announced that it will introduce Alex and Ani products to 108 Jared stores in September as a test campaign ahead of the holiday season. Other new merchandising initiatives include its Chosen Diamond and Vera Wang Love rollout, while Zale stores will run a new “Diamond Kind of Love advertising campaign for the season.
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