Is This Jeweler Up For A Big Run?

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Oct 15, 2014

Shares of Signet Jewelers (SIG, Financial) have soared 50% on a year-to-date basis. It is quite interesting to see an impressive share price appreciation for a company that sells a discretionary product like jewelry. This means that people are indeed willing to buy expensive products and are able to afford it.

Further, the retailer has made a lot of efforts to gain customer attention. It has also made an acquisition recently to expand its business. All this strengthened its second-quarter performance. Its quarterly results were beyond analysts’ expectations, enabling its share price to rise further.

A sneak peek into the quarter

Revenue jumped a whopping 39% over last year, clocking in at $1.23 billion. Analysts were expecting a top line of $1.19 billion. Sales were driven by higher demand by customers, which resulted in a same store sales growth of 4.8%. Also, Signet made a very important acquisition of Zale Corporation (ZLC, Financial) in May, which added to its growth. However, if we exclude the effect of the buyout, same store sales actually grew by 6.3%. Organically, revenue for the quarter rose 11% as compared to the prior year’s quarter.

One of the brightest segments during the quarter was the e-commerce division. Sales in this segment surged 62% to $50.5 million. Nonetheless, sales at all divisions have grown over the last year. Sterling Jewelers and U.K. division registered growth of 9.4% and 17.1%, respectively, on the back higher demand for bridal wear and diamonds.

Adjusted earnings of $1.00 per share were higher than the analysts’ expectations. Also, it was 19% more than last year’s bottom line. Thus, the company not only attracted more customers but also managed its costs well. However, costs related to the recent acquisition affected its margins.

The deal

Signet bought Zale Corporation for $1.46 billion. This made Signet grow manifold in size and geographic presence. Also, it has a strong online presence, which will help Signet expand its e-commerce business. Moreover, the buyout is expected to yield cost savings of $150 to $175 million per year. This will result in a higher bottom line for Signet, going forward.

Better than peers

When compared to its rival Tiffany (TIF, Financial), Signet has been a better performer. Signet is the largest specialty jeweler, and its stock price has risen by 72.0% in the last year. On the other hand, Tiffany’s shares have risen by 28.5% only. This shows that Signet has been doing much better.

Tiffany’s recently reported second quarter was ahead of expectations, but not as good as that of its peers. Its revenue moved 7% north and comparable store sales grew 3%. Also, its bottom line jumped 15.7% to $0.96 per share, over the prior year’s quarter. Furthermore, it is expecting its new range of products, such as Atlas Collection, and expansion in Asia, will lead to growth. Therefore, it raised its outlook for the year.

Key takeaway

Signet Jewelers is a great performer, which is clearly evident from its second quarter numbers and its share price appreciation. Moreover, it is able to outperform its peers also, withholding its leading position. Also, its recently acquired Zale Corporation will help in enhancing its business. Hence, this company deserves a place in your portfolio.