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Signet's Profit -5%, Gross Margin Slips in 2Q

Aug 29, 2013 7:34 AM   By Jeff Miller
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RAPAPORT... Signet Group's revenue rose 3 percent year on year to $880.2 million for the second quarter that ended on August 3. Same-store sales rose 3.6 percent and sales from the company's ecommerce channels jumped 28.9 percent to $31.2 million. Cost of sales rose 5.2 percent to $570.5 million and gross margin slipped to 35.2 percent from 36.4 percent one year earlier.  Profit fell 4.7 percent to $67.4 million or 84 cents per share.

U.S. division revenue improved 5.6 percent year on year to $741.1 million, while comparable-store sales increased 4.9 percent. Signet observed stronger sales from bridal, colored diamonds and watches. Kay and Jared experienced increases in both transaction counts and average transaction value. signet revenue

In the U.K., revenue fell 6.1 percent at  constant-exchange rates to $139.1 million and same-store sales fell 2.4 percent. Sales declines at H. Samuel and Ernest Jones were primarily due to  the impact of closed stores  and currency fluctuation. In Ernest Jones, the number of transactions increased driven primarily by strength in branded bridal and watches.

Signet Group's cash and cash equivalents contracted by 10.4 percent year on year to $212.9 million, in large part due to the retailer's share repurchase program and the acquisition of Ultra Stores. Signet has $325 million  remaining under its share repurchase authorization program. Inventory rose 8 percent to  $1.42 billion, primarily due to the Ultra acquisition and rough diamond purchases of $32.3 million.

The jewelry retail chain explained that revenue from its Ultra Stores increased the group's gross margin dollars by $5.7 million; however, it reduced the consolidated gross margin rate by 50 basis points and the U.S. gross margin rate by 70 basis points. Ultra's gross margin was lower due to weaker store productivity and the impact of its integration with the larger group. Gross margin dollars in the U.S. increased by $1.3 million compared with one year ago, reflecting higher sales but these were offset by a gross margin decrease of 180 basis points.  The U.S. net bad debt ratio increased to 4.9 percent of sales compared with 4.5 percent of sales  primarily due to the growth in the outstanding receivable balance. In addition, the U.S. division experienced a slight decline in collection efficiency and a change in the credit mix.

In the U.K., gross margin dollars decreased $2.8 million, primarily reflecting the impact of decreased sales and a stronger dollar, offset by a gross margin rate increase of 40 basis points. Currency translation costs rose $10.2 million or 4.2 percent.

Mike Barnes, Signet Group's CEO, said,  “Our earnings per share of 84 cents were at the high-end of our guidance; excluding Ultra our earnings per share were 90 cents. All results were, as previously explained, impacted by the Mother’s Day calendar shift. I would like to thank all Signet associates for their contributions to these results. We continue to believe we are poised to drive profitable market share with exciting programs in place to achieve this result over the balance of the year. We will focus on our competitive strengths led by our talented sales teams, supported by an exciting merchandise selection, increased advertising impressions that captivate consumers and the strength of our ecommerce initiatives. These combined efforts have us well-positioned for the all-important Christmas season and to meet our objectives for the year.”


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Tags: comps, earnings, group, guidance, Jared, Jeff Miller, jones, kay, margin, sales, Samuel, Signet
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