Signet Jewelers posted surprisingly poor results for the first quarter of fiscal 2018 (ended April 29), with overall comps falling 11.5 percent.
In a conference call following the release of its financial results, CEO Mark Light blamed the results on the late timing of Mother’s Day, continued “retail headwinds,” falling mall traffic, “deep promotional activity across the jewelry sector,” and late tax refunds, which he said hurt sales for Valentine’s Day.
Comps declined at every one of the company’s nameplates, including Piercing Pagoda, which had, until now, largely posted positive comps—though it did post higher sales overall. E-commerce sales improved 1.1 percent, which the company attributed to enhancements in its platforms.
Same-store sales dropped 13.5 percent at Kay; 10.3 percent at Jared; 21.4 percent at its regional brands; 13.4 percent at Zales; 25.2 percent at Gordons; 1.3 percent at Piercing Pagoda; 5.2 percent at its Canadian division; and 3.5 percent at its United Kingdom division.
Net income for the quarter was $78.5 million, a 46 percent drop from $146.8 million the prior year.
On the positive side, Light said the company saw “solid performance over [the] Mother’s Day selling period,” leading it to reiterate its full-year guidance.
“We had a very very tough start to the year, it was not a great Valentine’s Day,” Light said. But he said the business has seen “sequential improvement” from Valentine’s Day through Mother’s Day.
Higher-priced bridal jewelry and diamond fashion jewelry outperformed other merchandise categories, with its Ever Us brand still registering growth.
For the future, the company said that it plans to close 165 to 170 stores this fiscal year and open 90 to 115.
Light said that the continued closing of independent jewelers represents an opportunity for the company in the long run, though it has sometimes been hurt when those jewelers liquidate inventory.
He also indicated that the company is inching away from malls. He notes that now about 6 percent of its sales are outside the mall; a few years from now, he expects that 50 percent of its business will be outside the mall.
Along those lines, chief financial officer Michele Santana said that its off-mall Kay locations are currently among its best-performing stores.
Signet also announced a long-anticipated change to its credit program, that will eventually lead to the outsourcing of all its credit services.
In the first phase of its new credit program, Signet will sell $1 billion of prime accounts receivables to Alliance Data Systems Corporation at par value. Alliance will then become the primary provider of credit for its Sterling division, which includes its Kay, Jared, and regional brands. Alliance currently provides credit for Signet’s Zale division.
Signet will retain existing nonprime accounts on its balance sheet, but outsource the credit servicing functions of those accounts to Genesis Financial Solutions.
It also signed a seven-year deal with Progressive Leasing to provide a lease-purchase payment option to customers who do not qualify for credit.
The second phase calls for Signet to fully outsource its credit and sell the remaining receivables on its balance sheet.
The new credit arrangements are designed to maintain the company’s net sales, said Santana. She also noted that the Progressive arrangement may present an “incremental revenue opportunity” for Signet.
Short sellers have lately raised questions about the company’s in-house credit, particularly the number of subprime accounts on its balance sheet and its use of the recency accounting method. Santana said that Signet will soon cease using the recency method, and transition to the more widely used contractural aging method.
The new program came as the result of a credit review conducted by Goldman Sachs.