Signet Jewelers Ltd. SIG has turnaround potential, in my opinion, following its 52% stock price fall in the past year.
The jewellery retailer is investing in new technology, aiming to reduce its costs and broadening the range of products and services that it sells to consumers.
Technology investment
The company is investing in new technology to improve the shopping experiences of its customers. For example, in the fiscal 2020 third quarter it increased the number of iPads it has in its stores to 19,000. They provide the retailer’s customers with access to its custom design tools, which can be used to personalize its products. This could differentiate Signet versus its sector peers and improve its sales prospects.
In addition, the business made improvements to its mobile app in the third quarter. It launched new features that make it easier for its customers to customize their jewelry and has improved the layout of its app. It has also moved its various websites to one platform so that they offer greater speed for customers. This may encourage a higher proportion of customers to purchase its products online.
New products and services
The retailer is widening its range of services to broaden its potential customer base. For example, it launched ear piercing services across 400 of its stores in the third quarter. Ear piercing services have been positively received by its customers, according to the company’s third quarter results, and may increase the number of consumers who visit its stores.
Signet has also offered special events such as free jewelry cleaning to make consumers aware of its repair services. This has contributed to an increase in its customer satisfaction levels.
Additionally, the retailer introduced a wide range of new brands in fiscal 2020. Many of them are exclusive to Signet’s stores, which could help to differentiate it from its sector peers. It has also introduced a broader range of gifts and products that occupy lower price points. They may broaden its appeal to a wider range of customers with differing budgets, and could lead to it winning market share from its sector peers.
Potential difficulties
The company’s performance in the third quarter was disappointing. In the UK, for example, it recorded a 5.2% decline in sales compared to the same quarter of the previous year due to weak consumer sentiment. This is expected to continue in the fourth quarter and contribute to a decline in its overall same-store sales of around 1.7% for the 2020 fiscal year.
Signet derives around 15% of its products from China. Their supply could be disrupted by the new coronavirus outbreak, which has caused many production facilities in the country to close. This may lead to a shortage of some of the company’s products and could negatively impact its short-term financial prospects.
In response, the retailer is seeking to become more efficient. It is aiming to reduce its costs by around $80 million in fiscal 2020 through improving its procurement process, reducing its staff numbers and cutting costs at its head office. This forms part of its three-year cost reduction target of $225 million. Cost savings could help Signet to offset a possible slowdown in its sales as well as overcome supply issues from its products that are manufactured in China.
Future prospects
Market analysts forecast that the company will report earnings per share of $3.67 in fiscal 2020 after its loss of $4.30 per share in fiscal 2019. Its forward price-earnings ratio of 3.6 suggests that it offers a wide margin of safety and could deliver stock price growth.
Disclosure: The author has no position in any stocks mentioned.
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