Signet Jewelers (SIG, Financial) is shining brightly after beating Q2 EPS expectations, continuing a winning streak that extends beyond five years. The company also reaffirmed its FY25 guidance across the board. Despite a 27% decline in stock value this year due to macroeconomic and company-specific issues, such as digital banner integration missteps, SIG's Q2 earnings report shows improving trends in both fashion and engagement categories.
- Same store sales are on an upward trajectory. After a 9.6% decline in Q4 and an 8.9% decline in Q1, same store sales were down just 3.4% this quarter. SIG forecasts comps of -1% to +1.5% for Q3, indicating potential positive growth.
- The engagement business is slowly improving. Although SIG initially estimated a 5-10% increase in engagements for FY25, it now expects a 5% increase. Engagement units are currently in positive territory on a Q3-to-date basis.
- Middle-income consumers are shying away from big-ticket purchases, including jewelry. However, higher-income customers are still active, evidenced by a 1.6% increase in average transaction value in North America.
- Fashion sales trends are improving, and SIG expects more robust fashion sales in the back half of FY25. Stronger fashion sales contributed to merchandise margin improvements in Q2, leading to a modest 10 bps gain in gross margin to 38.0%.
- SIG is keeping costs under control. SG&A expenses decreased by 2.5% year-over-year to $498.4 million. The company aims to achieve up to $200 million in cost savings in FY25, up from its prior guidance of $150-$180 million, by leveraging technology like AI and implementing sourcing efficiencies.
The main takeaway is that expectations were muted ahead of SIG's earnings report due to sluggish consumer spending on big-ticket items. However, the results and outlook indicate positive trends. Along with a more favorable demand picture, SIG's focus on reducing expenses should enable it to return to positive EPS growth soon.
