Global jewelry retailer
Signet Jewelers Limited (NASDAQ: SIG) stock has seen a strong recovery off its pandemic lows but continues to struggle to outperform the benchmark
S&P 500 index (NYSEARCA: SPY). While
pandemic headwinds caused store closures early in the year, the deficit was partially offset by surging online sales. With the reopening of malls and non-essential businesses, shares got overextended resulting in deep pullbacks ahead of Q3 2020 earnings. The jewelry business is a second-half of the year story that accelerates into the holiday season climax. Prudent investors anticipating a strong
holiday shopping season can monitor shares for opportunistic pullback levels at
bargain prices on the daily sell-off.
Q2 FY 2021 Earnings Release
On Sept. 2, 2020, Signet released its fiscal second-quarter fiscal 2021 results for the quarter ending July 2020. The Company reported an earnings-per-share (EPS) loss of (-$1.13) excluding non-recurring items versus consensus analyst estimates for a loss of (-$2.07), beating estimates by $0.94. Revenues fell (-34.8%) year-over-year (YoY) to $888 million beating analyst estimates for $788.51 million. Cost containment measures will exceed in $100 million of savings in fiscal year 2021. Design and service centers were closed until late in the quarter and expects a portion of those revenues to recognized later in the year. Inventories were down $75 to $75 million YoY, but inventory from closed stores was used to replenish active stores. The Company closed the quarter with $1.2 billion in cash and cash equivalents. The Company expects to continue investing in the digital transformation as capex spend is estimated at around $85 million, down from $143 last year. The Company refrained from using any guidance due to the ripple effects stemming from the uncertainty of COVID-19.
Conference Call Takeaways
Signet CEO, Gina Dross, highlighted the impressive e-commerce growth as stores continue to reopen in a limited capacity. Same-store-sales (SSS) were down (-31.2%) YoY, partially due to the slow reopening pace that eventually pushed 90% of all stores operating by mid-July. Ecommerce sales jumped by 72.1% YoY in the quarter. The Company established a virtual selling team and scale up to over half of the 15,000 employees to enable virtual tools to sell in-store or from home. This resulted in over 300,000 booked appointments via virtual, video conference and curbside. These personalized engagements resulted in “both higher conversion and higher average transaction value than historical ecommerce transactions.” Ecommerce penetration was 30% in Q2 and even as store opening reached scale in August, ecommerce penetration is still at “roughly 20%”. The Company has increased ecommerce distribution throughput five-fold heading into the holiday season.
Paving Forward with the Path to Brilliance
The “Path to Brilliance” strategy has been accelerating the close of non-performing brick and mortar stores while expanding online sales. The Company has closed 19% of stores since 2017, mostly in underperforming traditional mall locations. Signet has closed 293 of the 380 planned closures. In fiscal year 2018, Ecommerce accounted for only 8% of total sales in 2018. This has more than doubled to 19.3% in fiscal Q1 2021 as the Company shut down 36 more stores in the quarter. Multi-banner store-within-a-store locations will expand to 80 or a one-third of Jared stores heading into the holidays, where a James Allen store would be located within a Jared location. Preliminary August SSS went positive showing 10.9% YoY growth as ecommerce growth rose 65.2%. This is what excited investors bolstering sentiment and driving up shares to a peak of $27.02 in the following weeks. Investors may have gotten carried away and share collapsed back down to $21s. The bar set high has been lowered. Prudent investors can watch for further opportunistic pullback levels to gain exposure at bargain levels.
SIG Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precise view of the landscape for SIG stock. The weekly rifle chart formed a pup breakout through the key $12.66 Fibonacci (fib) level resistance in July to set off a full stochastic stair step oscillation through the 80-band. Shares peaked at the $27.02 causing the weekly stochastic to cross down but still holding above the 80-band. The weekly formed a weekly market structure high (MSH) trigger under $21.77. The daily rifle chart sold off when the daily MSH triggered on the breakdown through $24.77. The daily stochastic is making a full oscillation down to towards the 20 band. The daily stochastic may fall through the 20-band on a mini inverse pup for opportunistic pullback levels at the $19.70 daily lower Bollinger Band (BB), $18.93 fib, $17.12 fib and the $15.52 fib. Make sure to watch the daily stochastic as a reversal bounce is only solidified by a cross up. The trade-off is getting bargain prices on the way down versus paying higher prices after the daily cross up. Share allocation is critical when scaling into a position.
