The holiday quarter proved to be a boon to Signet Jewelers Limited (SIG, Financial). The Bermuda-based company witnessed an increase of 30% in profits for the fourth quarter from the same quarter last year, while sales did not meet Wall Street's expected amount. The fourth quarter net income earned was $2.84 a share or $228.0 million. This was an improvement over last year's net income for the same period, of $2.18 a share or $175.2 million. On Thursday, Signet shares fell by 3.2%.
Financial equations
Signet had announced of its plans in May last year to acquire Zale Corporation (ZLC, Financial) for $1.4 billion. This acquisition helped the jeweler witness an income rise. Signet purchased Zale for $21 a share in cash consideration. The main force that drove the company to higher revenue was Zale's sales. Zale alone contributed $636.7 million in the fourth quarter fiscal year of 2015. The Zale division reported a 3.7% rise in same-store sales for the same quarter. The overall same store sales witnessed a 4.2% raise for the said period. The Kay & Jared divisions witnessed a growth of 4.6%. Sales showed an upward trend from $1.56 billion in 2013 to $2.28 B this year. Thirteen analysts had projected the profits per share to be $3.04 in a data compiled by Reuters. This, however, excluded special items. The ecommerce sales also increased in the fourth quarter, from $79 million last year to $149.6 million for this year's quarter. Again, the main contributing factor was Zale's sales. For its current quarter, the jeweler expects an EPS of $1.57 to $1.62. Analysts have estimated the EPS to be $1.61 per share. The company expects an increment of 3 to 4% in same-store sales.
Road ahead
The company, which has its vision towards the middle mass jewelry segment expects around $100 million in synergy potential by the end of the fiscal year 2018. This includes the savings of $50 million through product purchase and sourcing along with $30 million from repair service sales as well as $20 million from less selling general and administrative overheads. Founded in 1949, Signet Jewelers was previously known as Ratner Group. Mark Light, Signet's CEO congratulated the Signet team for the amazing fourth quarter and fiscal year's results. He said without their dedication, passion and collaboration, delivering value to the company's shareholders would not have been possible. He also praised their efforts in helping the company to grow in the future. The company as a whole is committed to shareholder distributions and Signet views their stock as an investment opportunity, he said. Signet shareholders surely need not worry about any tribulations by the strong dollar, as the CEO has provided them the required assurance.
Investor take
Every Signet shareholder will receive a 22% rise in the quarterly cash dividend. Therefore, the new share return will be 22 cents from the previous 18 cents. This new return will be paid on March 27 this year. The chief financial officer of Signet, Michele Santana, said that the jeweler company will continue in its efforts to target investment grade ratings. Efforts will also be made for a 3.5 times adjusted leverage ratio. The company plans to repurchase around $100 million to $150 million of their shares and also plans to bring an increase in their dividends as per their capital allocation strategy. It surely seems that the company is moving in the right direction. The acquisition of Zale turned out to work in everyone's best interests.
