Signet stock (NYSE:SIG) is getting slammed today after just reporting weaker than expected earnings. First, lets hear what CEO Virginia Drosos had to say:
“Signet had a challenging third quarter. In addition to an anticipated sequential slowdown in our same store sales, unfavorable weather-related incidents, along with unexpected disruptions during the transition of our credit services, further negatively impacted results. Encouragingly, within this backdrop, we advanced our strategic priorities, which are beginning to deliver results.”
The CEO was further adamant that there are positive things to consider:
“We are seeing positive customer reaction to enhancements in our OmniChannel experience, as well as streamlined marketing messages and improved fashion assortment. We have also implemented several synergies from the R2Net acquisition ahead of plan. Unfortunately, these wins are being overshadowed by the systems disruptions and significant process changes associated with the outsourcing of our credit portfolio, with particular impact at Kay. While the identified systems issues are behind us, we expect some credit process disruption to continue and to negatively impact our fourth quarter and full-year performance.
Focusing on the future
“We remain focused on executing our three strategic priorities: Customer First, OmniChannel, and Culture of Agility and Efficiency. While it’s still early, we are aggressively transforming our business and believe we are on the right track to create a more competitive and innovative Signet that is poised for sustainable, profitable growth. I thank our Team Members for their dedication and hard work.”
Key Q3 Results
Signet stock is getting hit on the results. Signet’s total sales were $1,156.9 million, down $29.3 million or 2.5%, compared to a decrease also of 2.5% in the 13 weeks ended October 29, 2016. Same store sales decreased 5.0%, which includes a positive 40 basis point contribution from R2Net, compared to a decrease of 2.0% in the third quarter Fiscal 2017. Third quarter same store were negatively impacted due to weather-related incidents by an estimated 60 basis points and disruptions related to the credit outsourcing transition by an estimated 60 basis points.
Looking Ahead to 2018
Signet stock is getting hit on the outlook. There are some positives. On October 23, 2017, Signet completed the first phase of strategic outsourcing of its credit portfolio to Alliance Data Systems and Genesis Financial Solutions. As part of the first phase, Alliance Data acquired the prime credit quality portion of Signet’s existing credit portfolio and became the primary provider of credit to Signet’s customers, while the credit servicing functions of the non-prime book has been outsourced to Genesis.
“As a result [of what we have seen], we now expect our fourth quarter same store sales to be down low- to mid-single digits, leading to Fiscal 2018 same store sales down mid-single digits and earnings ranging from $6.10 to $6.50 per share.”
Signet is experiencing greater than anticipated disruptions related to the complex credit transition process. Signet and its credit partners are working with great urgency to resolve these issues, and while the critical majority of the systems-related issues have been identified and restored, the Company expects the financial impact to carry forward into the fourth quarter given the significant changes to the credit-related processes.
Signet now expects Fiscal 2018 same store sales to be down a mid single-digit percentage as well.
Our Take On The Stock:
Signet stock is a bit bruised here. We like shares down 20% for a long-term buy. While there are kinks to be worked out, Signet stock is a gem in a strong economy. We recommend taking advantage of the sale here.
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