(IDEX Online) – Signet Jewelers Limited same store sales were up 1.7% versus the prior year quarter, the jeweler reported in its results for the 13 weeks ended August 4.

 

The firm raised its fiscal 2019 guidance for same store sales down 1.5% to flat, and total sales of $6.2 billion-$6.3 billion.

 

Virginia C. Drosos, Chief Executive Officer, commented, “While it is still early in our journey, we are encouraged by our improving year-to-date performance as we execute against our Path to Brilliance transformation plan. During the second quarter, we continued to see stabilization in same store sales, and we remain confident that we have the right strategies in place to continue to drive operational improvement over the long-term. To reflect our improved second quarter performance, we are modestly raising our revenue and earnings guidance for the year. For the fourth quarter, however, where a vast majority of our annual operating profit is generated, we are remaining appropriately cautious in our outlook as many of our Path to Brilliance initiatives are being launched later in the year.”

 

Drosos continued, “Another highlight of the second quarter was the completion of our transition to a fully outsourced credit structure. Our teams are now able to fully focus on optimizing performance within the new credit structure which will be critical to driving a successful holiday season. As a reminder, transaction proceeds from the full outsourcing of credit over the past year were $1.4 billion, which enabled the company to repurchase 25% of its outstanding shares.”

 

Second Quarter 2019 Financial Highlights

 

Signet's total sales were $1.42 billion, up 1.5%, in the 13 weeks ended August 4, on a reported basis and up 1.1% on a constant currency basis. Total same store sales performance was 1.7% versus the prior year quarter, inclusive of a positive impact of 40 bps due to planned shifts in timing of promotions at Jared and a negative impact of approximately 160 bps due to transition issues related to the October 2017 credit outsourcing. Same store sales performance reflected the impact of initiatives to increase newness and refocus the product assortment, as well as incremental clearance sales to make room for new product. Incremental clearance had a positive impact on same store sales of 240 bps.

 

The increase in total sales of $20.5 million in the quarter was positively impacted by 1) same store sales performance; 2) the addition of James Allen (acquired in September 2017); 3) the application of new revenue recognition accounting standards; and 4) foreign exchange translation benefit. These factors were partially offset by the negative impact of a calendar shift due to the 53rd week in Fiscal 2018 and net store closures.

 

eCommerce sales in the second quarter including James Allen were $150.3 million, up 82.8% on a reported basis. James Allen sales were $54.4 million in the quarter, up 25.3% compared to the prior year quarter, and had a positive 80 bps impact on total company same store sales. eCommerce sales increased across all segments and accounted for 10.6% of second quarter sales, up from 5.9% of total sales in the prior year second quarter.

 

By operating segment:

 

North America

 

Same store sales increased 2.1%, including the impact of initiatives across banners to increase newness and refocus the product assortment and James Allen sales growth which contributed 90 bps. Average transaction value ("ATV") increased 6.5% and the number of transactions declined (3.0)%. Incremental clearance sales positively impacted same store sales by approximately 270 bps, and a planned shift in timing of promotions at Jared contributed 40 bps. Same store sales were negatively impacted by approximately 175 bps, as a result of transition issues related to the October 2017 credit outsourcing.

Same store sales increased at Zales by 7.1%, and Piercing Pagoda by 11.5%. Jared grew by 1.2%, including a positive impact of 195 bps due to a planned shift in the timing of promotions. Kay same store sales decreased (2.1)%.

 

Bridal and fashion sales increased in the quarter, benefiting from a greater percentage of newness in the core product assortment and higher clearance sales. This increase was partially offset by declines in the Other product category driven by a strategic reduction of owned brand beads, as well as declines in other branded beads. Bridal performance was driven by strength in solitaires and the Enchanted Disney Fine Jewelry® collection partially offset by declines in the Ever Us® collection. Fashion performance was primarily driven by gold, particularly chains and bracelets, and diamond jewelry items.

International

 

International same store sales decreased (2.4)%, with ATV increasing 6.3% and the number of transactions decreasing (7.8%).

 

The same store sales decline was driven by lower sales in diamond jewelry and fashion watches, partially offset by higher sales in prestige watches.

Gross margin was $427.0 million, or 30.1% of sales, down 260 basis points. Gross margin was negatively impacted by $63.2 million, or 440 bps, due to restructuring charges related to an inventory charge. The charge relates to brands and collections that the Company is discontinuing as part of its transformation plan to increase newness across our categories. Excluding this charge, gross margin was $490.2 million or 34.5% of sales, up 180 basis points. Transformation cost savings related to direct sourcing, distribution and store occupancy offset sales deleverage and higher mix of clearance inventory sales. Additional factors impacting gross margin rate include 1) a positive 350 bps impact related to no longer recognizing bad debt expense and late charge income; 2) a negative 80 bps impact related to James Allen, which carries a lower gross margin rate; 3) a negative 60 bps impact related to the discontinuation of credit insurance; and 4) a negative 20 bps impact related to adopting new revenue recognition accounting standards.

 

In Fiscal 2019, the company continues to expect net costs savings of $85 million - $100 million, with further incremental net cost savings of $115 million - $125 million by the end of the three-year program. The majority of the Fiscal 2019 savings are expected to be realized in the second half of the fiscal year with approximately one third achieved year to date. In Fiscal 2019, the company's preliminary estimates for pre-tax charges related to cost reduction activities and inventory charges ranges from $125 million - $135 million, of which $40 million - $45 million are expected to be cash charges.

 

Separately, Signet announced that Chief Financial Officer Michele Santana will leave the company in 2019 after eight years of service to pursue other opportunities.

 

Signet has initiated an external executive search and expects to appoint a new CFO by the end of the company’s fiscal year. Santana will continue as CFO until her successor is appointed and will remain with Signet in an advisory role until next year to ensure a smooth transition.