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Signet's 1Q Sales +10%, Profit +11%, EPS +18%

Same-Store Sales +6%, Ultra Weighs on Gross Margin

May 23, 2013 7:59 AM   By Jeff Miller
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RAPAPORT... Signet Jewelers reported that sales rose 10.4 percent year on year to $993.6 million for the first quarter that ended on May 4. Same-store sale increased 6.4 percent and ecommerce revenue jumped 40.7 percent to $31.1 million. Profit improved 11.3 percent to $91.8 million; however, earnings per share (EPS) jumped 17.7 percent to $1.13 as the weighted average diluted number of common shares fell to 81.3 million compared with 86.3 million one year ago. Gross margin as a percentage of sales fell to 38.5 percent from 39.3 percent.signet eps

U.S. division sales during the quarter rose 14.3 percent to $858.6 million, while comparable-store sales increased 8.1 percent. Signet stated that performance was driven by  broad-based strength across all merchandise categories at the Kay and Jared brand stores, as well as through its Ultra acquisition. Kay and Jared experienced increases in transaction counts and Kay, in particular, increased in average transaction value. Online sales for the U.S. brands jumped 48 percent to $25.6 million.

U.K. division sales fell 5.5 percent at constant exchange rates and same-store sales declined 2.3 percent. Revenue in dollars decreased 9.1 percent year on year to $135 million in part due to currency fluctuation of $5.6 million and the impact from store closures of H.Samuel. At Ernest Jones, the number of transactions increased and there was strength in the bridal business and watches; however,  the number of transactions declined at H.Samuel. Online sales rose 14.6 percent to  $5.5 million.

Signet stated that the inclusion of Ultra Stores increased gross margin dollars by $8.8 million; however, it also reduced the consolidated gross margin rate by 50 basis points and the U.S. gross margin rate by 60 basis points due  to lower store productivity and the impact of the integration with Kay. Ultra gross margins are expected to improve as the conversion to Kay outlets is completed, according to the retailer.

Cash and cash equivalents at the end of the quarter totaled $263.7 million compared with $399 million one year ago due to higher earnings offset principally by share repurchases and the Ultra acquisition. Signet repurchased 749,245 shares in the first quarter at an average cost of $66.92 per share. Accounts receivable jumped 12.9 percent to almost $1.2 billion due to higher credit sales driven principally by an increase in the bridal business. The credit participation rate was 55.3 percent compared with 55.8 percent in 2012. Signet's inventory level rose 6.8 percent to $1.4 billion and this was primarily due to the Ultra acquisition, rough diamond purchases, expansion of bridal programs and new store openings. Partially offsetting these increases were management actions to improve inventory turns.

During the quarter, Signet closed 17 stores and opened 15. As of May 4, Signet operated 765 Kay mall locations, 192 Kay off-mall stores, 190 Jared boutiques, 193 regional stores, 109 Ultra stores and 33 Ultra licensed jewelry departments in the U.S. In the U.K., Signet operated 503 jewelry stores.

Mike Barnes, Signet's CEO, called the jeweler's results ''outstanding'' and added that strong sales for the Valentine's Day festival were driven by ''excellence in execution'' by sales associates. ''These terrific results were achieved by our team’s consistent ability to execute our initiatives by focusing on our competitive strengths. We believe this leaves us well-positioned to achieve our financial objectives for this year. Consistent with our commitment to returning value to shareholders, we utilized our remaining stock buyback authorization and repurchased $50.1 million of Signet shares during the first quarter.''

Going forward, Signet expects integration costs and the seasonality of Ultra store sales to be dilutive to second quarter EPS, however, Signet expect Ultra to contribute positively to performance by the fourth quarter. Signet anticipates same-store sales increases in the low-to-mid single digits and earnings of 79 cents to 84 cents per share in the second quarter. For the full fiscal year, Signet plans  capital expenditures in the range of $180 million to $195 million, which includes costs related to opening between 70 and 80 new Kay and Jared stores,  store remodels, enhancements to its digital and information technology infrastructure and  Ultra store capital spending of approximately $14 million.

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Tags: earnings per share, eps, gross margin, h.samuel, income, inventory, Jared, Jeff Miller, kay, revenue, Signet
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