Strong U.S. sales drive Signet’s profits

Signet Group plc, the world’s largest specialty retail jeweler, reported Friday that first-quarter pre-tax profit totaled $50.8 million, a 9.4% increase at constant exchange rates. On a reported basis the increase was 6.9%, which reflects the continuing weakness of the U.S. dollar when compared to the Great Britain pound. Same-store sales rose 3.3%. Total sales were $673.1 million, a 7% increase at constant exchange rates and by 4.9% on a reported basis.

Operating profit for the quarter was $53.75 million, a 7.3% increase at constant exchange rates and 4.6% on a reported basis. Operating margin was unchanged at 8%, while gross margin was up slightly compared to the same quarter last year.

Operating profit in the U.S., which accounts for 70% of annual sales, totaled $57.2 million—an 18.9%increase at constant exchange rates and 15.9% on a reported basis. The operating margin increased to 11.3% (it was 10.6% in the first quarter of the previous year), principally due to operating leverage from the increase in same-store sales, the company said.

Same-store sales rose 7.1% for the quarter. Total sales increased 11.6% at constant exchange rates and by 8.6% on a reported basis to $506.4 million. Gross margin was broadly in line with the first quarter in 2004/05, the company said.

In the United Kingdom, which accounts for 30% of annual sales, there was a “marked deterioration” in the general retail environment, the company said. Same-store sales fell by 6.2% resulting in an operating loss of approximately $729 million. Total sales were $166.4 million for the quarter and gross margins rose. H.Samuel’s same-store sales were down 6.4% and those of Ernest Jones down 6%. Both chains saw a further increase of diamonds in the sales mix.

“We are very pleased with the increase in Group earnings of 10% given the present challenging trading conditions in the U.K.,” said Terry Burman, Signet chief executive. “This underlines the benefit of operating on both sides of the Atlantic.”

He added, “The general retail environment in the UK remained very difficult throughout the quarter. … We are continuing to adhere to our proven strategy, although we will ensure that costs, gross margins, and cash flow remain tightly managed.”

Signet operates 1,769 specialty retail jewelry stores, including 1,170 stores in the US, where the Group trades as “Kay Jewelers,” “Jared The Galleria Of Jewelry,” and under a number of regional names. The company also operates 599 stores in the UK, where the Group trades as “H.Samuel,” “Ernest Jones,” and “Leslie Davis”.