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Signet’s turnaround still looks underrated

JJewelry stocks don’t get much attention on Wall Street, and it’s easy to see why. It is a very fragmented, slow growing and mature industry, and only a handful of pure jewelry stocks are available in the market.

Bookmark Jewelers (NYSE: SIG), the parent company of well-known brands such as Kay, Zales and Jared, is the world’s largest diamond retailer and has quietly experienced an impressive turnaround in recent years. Even after a recent pullback, the stock is up nearly 300% in the past three years, thanks to its Inspiring Brilliance strategy that cut costs by closing stores and streamlining spending and focused on boosting online sales, thereby increasing profit margins.

Like other consumer discretionary products, the company has benefited from some pandemic tailwinds as stimulus checks have helped boost spending on some of its lower-end brands, but the company’s structural improvements appear designed to last beyond the health crisis, and its first-quarter revenue report helps show why.

The latest results

Facing tough comparisons in the year-ago quarter, Signet posted comparable sales growth of 2.5% and revenue growth of 8.9% to $1.84 billion, helped by its acquisition of Diamonds Live last fall. This result exceeded estimates by $1.8 billion.

Ultimately, its adjusted operating margin continued to improve from 10% in the prior year quarter to 10.6%, and adjusted earnings per share (EPS) rose from 2.23 $ to $2.86, which beats estimates of $2.38.

What was even more impressive was that in one of the toughest retail earnings seasons in memory, Signet actually raised its full-year earnings forecast, calling for adjusted EPS. from $12.72 to $13.47, giving the stock a price-earnings ratio. ratio below five, based on this year’s expected earnings. It’s a great award for a healthy business in any industry.

Taking advantage of this rock bottom valuation, Signet has been busy buying back its shares. It completed $318 million in share buybacks, or 4.3 million shares, in the first quarter, reducing the number of shares outstanding by 8% to 48.8 million. It also expanded its share buyback authorization by $500 million, a sign that it aims to continue buying back shares at a rapid pace.

Signet’s balance sheet can support an aggressive buyout program as it has nearly $1 billion in cash and less than $200 million in long-term debt. The company also generated nearly $200 million in operating revenue in the first quarter.

Investors cheered the results as the stock jumped 9% on Thursday, although it gave back all those gains in Friday’s market sell-off.

Why is stock so cheap?

Like other discretionary retailers, Signet has reaped some benefits from the pandemic as consumer spending has shifted from services to goods and consumers have been delighted with several rounds of stimulus. Signet’s focus on connected commerce has also helped it capitalize on the online shopping boom during the pandemic.

After a decline in 2020 at the start of the pandemic, revenue jumped 50% to $7.82 billion, up 31% from 2019 (fiscal 2020). The stock peaked at $112 last November and, like other retailers, has fallen sharply — nearly 50% — as the market appears to believe the improvements in financial performance are strictly due to the pandemic.

However, the company is firmly focused on achieving double-digit operating margins after closing 20% ​​of its stores, improving the frequency of purchases using its loyalty program and reorienting of activity towards more effective online sales. It has also grown historically through acquisitions such as Diamonds Direct last year and is expected to continue to gain market share through both organic growth and acquisitions.

In other words, corporate improvements are not a pandemic accident. In three years, Signet has increased its operating margin by six times and its operating profit by eight times, and these gains should continue over the long term, even in the event of a recession.

At just five times earnings ahead and with an aggressive stock buyback program, Signet looks like a can’t-miss value stock holding its own at a time when much of the retail sector is under the shock.

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Jeremy Bowman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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