Why has the king of the jewelry hill hit a rough patch?
The most surprising part of Signet’s second-quarter results wasn’t just that it reported negative comps for the first time in six years, even after it boosted promotions. During its earnings call, chief financial officer Michele Santana implied that comps in upcoming quarters will likely fall as well. For a company that’s become the unquestioned king of the jewelry hill, Signet has hit an atypical rough patch.
CEO Mark Light had a few explanations for the slipping sales, including problems in oil-dependent regions, Brexit, and the “unusual” U.S. presidential campaign. But Brexit wasn’t really an American issue, and the election has been a debacle for almost a year. Just last quarter, Light was calling the bridal jewelry consumer “robust.”
Since then, though, Signet weathered a furious burst of negative publicity, centered on allegations of gem swapping at flagship brand Kay. Light said he didn’t know whether the bad press hurt sales, noting that Kay’s results slid less (0.5 percent) than its other brands. Still, in the prior quarter, Kay’s comps were up 4.7 percent; the quarter before that, they jumped 7.4 percent.
More likely: The PR problem took everyone’s eyes off the ball, depressing results across the board. When company executives must devote their days to defending the company on CNBC or reviewing take-in procedures, that’s less time spent driving the business forward. Maybe that’s why the company’s best-performing division last quarter—actually, the only U.S. division that performed well—was Piercing Pagoda, the least affected by the allegations.
During the earnings call, executives offered a striking number of sops to the financial community and company critics. It bought back an “unprecedented” amount of stock. It will do something different with its credit portfolio. It touted Leonard Green’s $625 million investment as a “vote of confidence.” And it’s installing a new system to map stones.
All of which makes sense. Executives have responded forcefully and intelligently to these issues, even though these results have snuffed out any hope for an immediate recovery for the company’s stock. At times, though, the company’s response seems a little muddled. On the earnings call, Santana referred to “unsubstantiated claims against Signet’s business integrity.” Clearly, it’s ridiculous to suggest that Signet has systemically engaged in or condoned gem swapping. Yet, some of the individual instances of stone switching likely did occur. A group of damage-control experts speaking to The Wall Street Journal argue that, to truly win back consumer trust, Signet needs to be far more open about the instances in question.
Still, its size may always leave it vulnerable to these charges. A company statement noted that it “manages 4 million service and repair transactions each year, and 99 percent are completed without negative feedback.” That’s impressive. But if we assume that customers have issues with only 0.5 percent of those transactions, that’s still about 20,000 problematic repairs a year. And with jewelry work, there isn’t much room for error. If an Amazon order gets screwed up, a consumer might get peeved, but not as mad as they’d become over the botched resizing of a $3,000 ring. Which may be why the bad publicity nudged so many negative experiences out of the woodwork.
The last few months have undoubtedly been humbling for Signet, but sometimes it’s good to be humbled. Last September, execs hinted at more acquisitions. Yet it is still in the process of integrating an 1,100-store chain. Hopefully, these travails will send a clear message: Even a great retailer—and I would put Signet in that category—can stumble when there is too much on its plate.