SIG shares tumble 11% after falling short of expectations

Signet Jewelers (SIG) reported Q3 FY25 results that fell short of market expectations for both earnings and revenue. Adjusted EPS came in at $0.24, missing the consensus estimate of $0.31, while revenue declined 3.1% year-over-year to $1.35 billion, below the expected $1.37 billion. The company’s adjusted operating income also underperformed, reaching $16.2 million versus the $19.9 million estimate, driven by softer sales and a flat gross margin. Despite the challenges, the company highlighted sequential improvements in same-store sales, reflecting a nearly three-point increase from Q2’s performance.

Guidance for Q4 and FY25 also came in weaker than expected, further pressuring investor sentiment. For Q4, SIG expects revenue between $2.38 billion and $2.46 billion, narrowly encompassing the consensus of $2.45 billion, and comps are forecasted to range from flat to +3%. Operating income for the quarter is guided between $397 million and $427 million, below the $448 million consensus. Full-year FY25 guidance was revised down, with revenue expected between $6.74 billion and $6.81 billion, compared to the prior range of $6.66 billion to $7.02 billion. EPS guidance was also reduced to $9.62-$10.08, from the earlier forecast of $9.90-$11.52.

Key metrics showed some areas of concern but also pockets of stability. Same-store sales declined 0.7% year-over-year, which, while negative, marked a significant improvement from the double-digit declines seen in prior quarters. Gross margin remained flat at 36.0%, slightly missing expectations of a 30-basis-point improvement. The North America segment reported a 2.3% decline in total sales, while the international segment fared worse, with an 11.4% drop due to lower transactions and the previously announced sale of prestige watch locations.

A notable driver for Q3 performance was the continued recovery in engagement-related sales and the introduction of new fashion merchandise with higher average transaction values (ATV). While these initiatives helped stabilize the business, ongoing integration challenges in its digital banners, James Allen and Blue Nile, weighed on results. Management cited difficulties in aligning these platforms with core operations, impacting both sales and operational efficiency.

The CEO transition further adds to the company’s uncertainty. New CEO J.K. Symancyk emphasized his commitment to evolving SIG’s strategy to deliver long-term growth and customer value. While his track record brings optimism, the transition costs and the strategic shift will require time to bear fruit. Management also flagged macroeconomic headwinds, including cautious consumer spending, which could pressure performance in the near term.

SIG’s challenges extend to its cash flow and balance sheet. Cash and cash equivalents at the end of Q3 stood at $157.7 million, significantly lower than the $643.8 million reported in Q3 FY24. However, the company continued its share repurchase program, buying back $66.5 million worth of shares during the quarter, signaling confidence in its long-term prospects despite the current challenges.

Shares of Signet fell over 11% following the earnings release, reflecting investor disappointment with the Q3 miss and reduced guidance. Analysts remain cautious, with concerns over macroeconomic pressures, slower engagement recovery, and uncertainties related to the digital integration efforts. UBS and other firms have maintained a "Market Perform" rating, emphasizing the need for clarity on SIG’s turnaround strategy and macro resilience.

In summary, while Signet is making strides in stabilizing its operations through improved same-store sales and higher-value merchandise, ongoing integration issues, weaker-than-expected guidance, and the CEO transition present near-term headwinds. The company’s ability to execute its long-term strategy amid these challenges will be crucial for regaining investor confidence and achieving sustainable growth.