Signet shares press higher despite top line miss

Signet Jewelers (SIG) reported Q2 earnings with adjusted EPS of $1.25, beating analyst expectations of $1.12. However, revenue came in slightly below estimates at $1.49 billion, compared to the forecasted $1.5 billion. The company's adjusted operating income of $68.6 million also exceeded the expected $65.2 million. Despite these positive surprises, total sales declined 7.6% year-over-year, reflecting ongoing challenges in the retail environment. Following the report, SIG's stock initially rose 2% in premarket trading but later reversed to a 2% decline, signaling mixed market sentiment.

For full-year fiscal 2025 guidance, Signet maintained its outlook for adjusted EPS between $9.90 and $11.52, which aligns with the consensus estimate of $10.24. The company also reaffirmed its total sales projection of $6.66 billion to $7.02 billion, slightly above the $6.77 billion expected by analysts. In terms of adjusted operating income, Signet's forecast of $590 million to $675 million exceeded the consensus estimate of $581.2 million, highlighting management’s confidence despite the current macroeconomic headwinds.

Geographically, North America, which accounts for the majority of Signet’s sales, saw a 3.7% decline in comparable sales. Total sales in this region were $1.4 billion, down 6.9% year-over-year, driven by a decrease in transaction volume despite a 1.6% increase in average transaction value (ATV). International sales were more heavily impacted, falling 15.2% to $86.5 million, largely due to the previously announced sale of prestige watch locations. Interestingly, international comparable store sales increased 1.7%, signaling some pockets of strength.

Key drivers behind Signet's performance include a higher mix of services and fashion merchandise, which helped improve merchandise margins by 120 basis points. Gross margin came in at 38.0%, a 10-basis-point improvement over the previous year, despite the overall decline in sales. However, the company faced significant non-cash impairment charges of $166 million, primarily related to the underperformance of its Digital Banners and the ongoing challenges with the Blue Nile integration. This led to an operating loss of $100.9 million compared to operating income of $90.2 million in the same quarter last year.

In terms of third-quarter guidance, Signet expects total sales between $1.345 billion and $1.380 billion and same-store sales to range between -1.0% and +1.5%. Adjusted operating income is projected between $8 million and $25 million, reflecting the continued challenges in the retail space. The company also forecasted adjusted EBITDA of $55 million to $72 million for the upcoming quarter. Signet’s outlook suggests management is cautiously optimistic about stabilizing performance as engagement metrics improve heading into the second half of the fiscal year.

Shares of SIG fluctuated initially but are trending higher as the market approaches the opening bell. The stock has now surpassed the August high resistance levels of $83-85. Looking ahead, the 200-day moving average at $94.67 is a critical resistance point for bulls to watch if they can maintain momentum.

Looking forward, management expressed confidence in their ability to meet full-year guidance, citing growth in high-margin fashion merchandise and increasing customer engagement. While the company faces macroeconomic pressures and internal challenges like the Blue Nile integration, management's reaffirmation of full-year targets indicates a belief that they can navigate these issues effectively. Still, the market reaction post-earnings highlights ongoing concerns around valuation and the longer-term outlook for the jewelry retail sector.