Signet Q1 U.S. Sales Flat; Profit Down 24%

Signet Group plc, the world’s largest specialty retail jeweler, said Friday that first quarter sales rose 1 percent to $822.5 million, year-over-year. Same-store sales decreased by 2.5 percent. Group profit before tax was down by 24 percent to $38.6 million for the period ended May 3.

Operating margin for the U.K.-based company was 5.3 percent, compared with 6.6 percent for the same period in the prior year. The company, which operates stores in the U.S. and the U.K., reported a tax rate was 36 percent.

First quarter sales in the U.S., which accounts for 74 percent of the total sales for the company, were flat at $631.1 million. Same-store sales fell 4.7 percent reflecting what the company calls a “difficult trading environment, partly offset by better weather over Valentine’s Day.”

Operating profit for the period was $45.5 million as a result of operational deleverage reflecting the decline in same-store sales. Gross margin was up 50 basis points, with price increases implemented after Valentine’s Day and in March offsetting higher commodity costs, greater promotional activity, and changes in sales mix.

“The objective of the price increases is at least to maintain the full year gross margin percentage at last year’s level,” the company said in a statement. “Early results remain encouraging, although a full evaluation will only be completed in the summer.”

The operating margin of U.S. operations was 7.2 percent, compared with 9.5 percent for the same period of the prior year. The net bad debt to total sales ratio was up by 70 basis points, which was largely offset by higher income associated with the receivables. The level of net space growth in the U.S. is now expected to be between 4 percent and 5 percent, whioch the company said is the result of the continuing application of the a strict investment criteria.

First quarter sales in the U.K., which account for 26 percent of total Group sales, were up 4 percent at constant exchange rates. The reported increase was 5.1 percent to $191.4 million. Same-store sales rose 5.3 percent for the period, with H.Samuel and Ernest Jones up by a similar amounts. Reflecting same-store sales performance, and continued good cost control, an operating profit of $2.7 million was achieved compared with a $1.9 million loss in the comparable period last year. The gross margin was up 40 basis points, with selective price increases more than offsetting the increased cost of gold and mix changes. To execute the Ernest Jones store refurbishment program more effectively over the medium term, it has been decided to reduce the number of refits and relocations scheduled for 2008/09 from 46 to about 35.

“The U.S. performance reflected a continuing difficult trading environment with the decline in like for like sales resulting in a lower operating margin despite a tight control of costs. The results of the price increases implemented in the U.S. in February and March remain encouraging, although a full evaluation will only be completed during the summer,” said Terry Burman, Signet Chief Executive.

“In a demanding marketplace the U.K. division had a good performance with the 5.3% like for like sales increase and a little changed cost base resulting in an operating profit of $2.7 million compared to a loss of $1.9 million in the first quarter last year,” Burman added. “Given the increasing pressure on consumer expenditure in the UK and demanding second quarter comparatives, like for like growth is not expected to continue at this level.”

Signet operates approximately 1,400 stores in the U.S. and trades nationwide as Kay Jewelers, and regionally under a number of well-established anames. Destination superstores trade as Jared The Galleria Of Jewelry. In the U.K., Signet operates 563 stores. The stores trade as “H.Samuel,” “Ernest Jones,” and “Leslie Davis.”