Comps fell at all its leading brands, including Kay, Jared, and Zales
Signet’s comps dropped for the first time since 2010, though management didn’t blame the recent spurt of bad publicity for the declines.
The company’s overall same-store dipped 2.3 percent in the second quarter of fiscal 2017 (ended July 30). Total sales dropped 2.6 percent to $1.4 billion.
Sales fell at just about all the company’s brands: Kay (down 0.5 percent), Jared (7.6 percent), its regional brands (5.1 percent), Zales (1.5 percent), Gordon’s (15 percent), U.K. chain H. Samuel (0.4 percent), and Canadian brands Peoples and Mappins (6.8 percent).
There were two bright spots: Comps at Piercing Pagoda jumped 6.4 percent, and U.K. chain Ernest Jones rose 1.9 percent.
In an earnings call following the results’ release, CEO Mark Light called the sales “disappointing,” adding “there are no signs yet of a rebounding trend.”
He blamed “macro and micro trends” for the drop.
“Our stores in states and provinces closely tied to the energy industry dramatically underperformed the division averages,” Light said. “Energy regions accounted for approximately half of our comp decline within North America.”
He also pointed to general consumer uncertainty. “There are a lot of questions out there, whether it be what’s happening with the Brexit [or the] presidential election, which is unique this year and has some unique characteristics, and that has affected the mind-set of middle-American consumers. It’s something that has happened before, and we feel we are going to come out of this just fine.”
He noted that other jewelers have also been having sales issues lately, particularly with bridal.
Still, he didn’t think the company’s early-summer spate of bad publicity fueled the drop, noting the Kay brand—the target of most complaints—outperformed its other nameplates.
“It is impossible to really know for sure if it has affected our sales or not,” he said, but added his company’s research shows the Kay brand is “very well-perceived.”
“On a regular basis, we look at consumer complaints on social media, and we had some lifts during May and into June,” he said. “But July and into August, it has all been normalized…. So we don’t believe the publicity overhang is really affecting our business.”
Chief financial officer Michele Santana said the company had spent $5 million on consultants to fight the bad press on social media and in the financial community.
To prevent further problems with repairs, Light said the company is working on installing new gemscope technology that will map customers’ diamonds at its Kay stores.
“Every customer’s diamond is like a thumbprint, they have all unique marks,” he said. “We will mark those on a digital screen, and then we will have the ability to digitally send that picture to our customers via email and keep it in our own files. We believe by putting this new technology in place we are enhancing and creating even more transparency for our customers, and it will be a huge competitive advantage for us into the future.”
Other points made on the conference call:
– Given questions about the its credit practices, the company enlisted Goldman Sachs to conduct a strategic review of its credit portfolio, including a possible sale. “We are very pleased with the interest in our credit book, and there are multiple interested parties we are in discussions with,” he said.
– All Jared stores will now feature the Chosen diamond, which is sold with information on its journey throughout the pipeline.
“This is in total alignment with the Jared customer, who tends to value this product and type of information,” Light said. “We are also designing new TV creative to support the Chosen.”
– Signet will increase promotion for Ever Us brand, with Light noting that “beacon” products tend to improve performance in the second year. It is also testing new line extensions. Partner Forevermark will also run TV commercials for the brand.
– The Vera Wang Love collection will be expanded into fashion jewelry.
– “All eyes will be on the ear” this holiday, Light said, and the company plans to spotlight earrings, climbers, studs, and hoops.
– Private equity firm Leonard Green & Partners has invested $625 million in the company. Managing director Jonathan Sokoloff will join the company’s board. The money will then be used for stock repurchases.
“[This is] a validating signal to the public markets about the long-term strength of our business model and our practices as a whole,” Light said. “The transaction itself was designed to be financially neutral, as Leonard Green’s investment will be based on the market price of our shares, and we will be recycling the capital to share repurchases at similar prices.… What we therefore get from the transaction is not capital but the experience, resources, financial acumen, and retail expertise that Leonard Green brings to the table.”
– Signet also bought back 4 percent of its shares during the quarter.
“When a market leader in a growing industry with a solid balance sheet reports record Q1 earnings in May and then goes on to get rewarded with the lowest valuation on the S&P 500 specialty retail index, then it’s time for unprecedented buybacks,” Santana said.