Signet Jewelers' Earnings: What Wall Street's Saying

NEW YORK (TheStreet) -- Signet Jewelers (SIG) surged Thursday on volume that was more than five times the stock's three-month average after the company reported strong core operations and increased its cost saving and revenue targets for its May-acquisition of Zale's.

Shares of the Hamilton, Bermuda based jewelry retailer -- the owner of Jared the Galleria of Jewelry, Kay Jewelers and, most recently, Zale's -- rose 7.7% to $116.37 and hit a new 52-week-high during intraday trading on Thursday of $117.42.

Signet reported second-quarter earnings of 72 cents a share, including several charges related to its acquisition of Zale's. Excluding the items, Signet reported earnings of $1 a share, up 19% from the year-earlier period and exceeding analysts' estimates of 98 cents a share. Sales rose 39.3% from last year's quarter, to $1.23 billion, fueled by the addition of Zale's and exceeding consensus estimates of $1.19 billion. Signet completed the acquisition in May.

The company said same-store sales of the chain's brands, excluding Zale's, rose 6.3% in the quarter. Its U.K. division delivered same-store sales growth of 4.4%, the best quarterly increase in seven years, the company said. Comparable sales in its Sterling Jewelers division, the unit that includes Kay and Jared, rose 6.7%. The company boosted its projection for revenue and cost-savings synergies from the Zale's transaction to between $150 million and $175 million, up from $100 million, previously.

Here's what Wall Street analysts were saying on Thursday.

Ike Boruchow, Sterne Agee (Buy; $135 PT)

While some investors were concerned on the timing of the Zale integration process, SIG's Q2 print carried plenty of reasons for optimism. Not only is the core Sterling business performing extremely well, but Zale is improving, synergy targets were raised ($150-175mm vs. $100mm prior) and the LT tax rate is now anticipated to be much lower (28-29% vs. 35% prior). The new and improved SIG story continues to have legs.

Dorothy Lakner, Topeka Capital Markets (Buy; $130 PT)

SIG sailed through the initial integration phase of its Zale acquisition, with an energized management team and field organization and with core Signet performing very well despite what could have been distractions due to Zale. Synergies from the acquisition are now $150M-$175M, up from $100M. With a full slate of new product and marketing for holiday, positive trends in jewelry and watches, SIG seems set up for further progress in 3Q and a strong holiday period this year.

Management seems to be moving very quickly to boost sales and margins at Zale, already testing added brands from Kay, but also paring down "nonproductive" inventory to make sure Zale has room for better product. Its store managers will shortly attend their first big holiday meeting, an event SIG has done with its managers to show holiday product and marketing and get them pumped up for holiday selling. Just like it has done in its UK business, SIG is putting its best practices to work at Zale, which we believe should yield rewards sooner rather than later.

TheStreet Ratings team rates SIGNET JEWELERS LTD as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate SIGNET JEWELERS LTD (SIG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SIG's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 6.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SIG's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, SIG has a quick ratio of 2.03, which demonstrates the ability of the company to cover short-term liquidity needs.
  • SIGNET JEWELERS LTD has improved earnings per share by 6.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SIGNET JEWELERS LTD increased its bottom line by earning $4.57 versus $4.36 in the prior year. This year, the market expects an improvement in earnings ($5.32 versus $4.57).
  • 41.21% is the gross profit margin for SIGNET JEWELERS LTD which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.14% is above that of the industry average.
  • Net operating cash flow has significantly increased by 62.97% to $73.50 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 25.53%.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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