Jared is going to the outlets.
Signet has created a new outlet concept for its Jared brand and remains committed to its current price for Zale, executives announced in a conference call following the release of its financial results.
Some 18 former Ultra Diamonds stores have been converted to the new Jared outlet nameplate, Jared Vault. The change has brought “pretty dramatic” results at some of the worst-performing Ultra stores, executives said. Signet purchased Ultra in 2012.
CEO Michael Barnes told analysts that he doesn’t think opening an outlet concept will diminish the Jared brand.
“It’s not like Jared Outlet,” he said. “It’s Jared Vault. It’s this valuable treasure-type feeling that you are building, not so different than maybe like a Saks OFF 5th or a Neiman Marcus Last Call. Both very high-end stores that have successful [outlet] divisions…It speaks to a different customer but a customer that wants to be on a treasure hunt.”
Barnes, who also praised the performance of the Kay Outlet stores, says the Jared Vaults feature discontinued merchandise sold at a discount, brand offerings sold at regular price, and product specially designed for those stores. They also sell pre-owned watches.
Chief financial officer Ron Ristau later said he expects the new nameplate will eventually expand to from 30 to 32 stores.
Barnes also discussed the company’s pending acquisition of Zale. Prior to the call, Signet issued a statement saying it’s committed to its current offer of $21 a share, which has been criticized by dissident shareholder TIG Advisors.
“I hope all the investors really understand the business risk associated with a stand-alone Zale business trying to achieve their stretch plans,” Barnes said. “They have some very difficult stretch plans that they would need to hit.”
He added that Zale has been “a little bit starved for capital.”
“We have said that we are prepared to make the appropriate capital investments to have that business move in the right direction,” he said. “It won’t be a simple task or easy task.”
Later, CFO Ronald Ristau said that reinvigorating Zale will require a “rather substantial” amount of capital, in the range of $80 million a year.
“There is a substantial amount of work to be done with [Zale’s] infrastructure, the stores, the inventory management system,” he said. “There is a lot of rebuilding work that has yet to be done…and a lot of money that needs to be invested in the business to drive it.”
The transaction also received some good news, with Institutional Investor Services, which advises shareholders, recommending a vote in favor of the deal. Zale shareholders are scheduled to vote on May 29.
The news came as the company announced a strong set of financial results for its most recent quarter, with healthy sales gains at Kay, Jared, and for e-commerce. Executives also said that the company had seen strong sales for Mother’s Day, beating its projections of a single-digit rise in comps.
Kay remained the best performer at its U.S. division, with a 4.2 percent increase in comps. Jared’s comps also rose 2.3 percent, but sales at regional brands fell 2.1 percent.
Fashion diamonds, bridal brands, and watches were among the best sellers in the U.S. division, executives said in a conference call following the release of its financial results. As far as specific brands, Barnes said Neil Lane was “on fire,” the Leo diamond did “very well,” Pandora “had a great quarter,” Lois Hill silver jewelry “has a lot of momentum,” and he also had singled out Levian, Artistry fashion diamonds in Kay and Vivid in Jared. For strong watch brands, he mentioned TAG Heuer, Movado, and Citizen.
Overall e-commerce sales jumped 24.4 percent, with a 20.7 percent increase in U.S. online sales. Some 40 percent of its site traffic was through mobile devices.
Its sometimes-struggling U.K. division, which had a change in management last year, also delivered some good news, with comps rising 4.1 percent. “Two quarters does not a long-term trend make,” Barnes said. “But we continue to make progress, and that is what we need to do.”
As far as Signet’s diamond-sourcing initiative, Barnes said its relationship with miners “continues to develop,” and it has some important meetings scheduled for the upcoming JCK show in Las Vegas.
Below are some highlights of Signet’s financial results for the first quarter of fiscal 2015 (ended May 3).
U.S. division comps: Up 3.2 percent
Kay: Up 4.2 percent
Jared: Up 2.3 percent
Regional brands: Down 2.1 percent
Overall U.S. sales: Up 5.4 percent to $903.5 million
U.K. division comps: Up 4.1 percent
E-commerce sales: Up 24.4 percent to $38.7 million
Operating income: Up 5.5 percent to $150.7 million
Diluted earnings per share: Up 6.2 percent to $1.20
The company expects comps to keep rising from 3 percent to 5 percent for the rest of the year.