Is it Time to Cash Out of Signet Jewelers Stock?

Global jewelry retailer Signet Jewelers Limited NASDAQ: SIG stock is attempting to reverse its downtrend as it trades down (-34%) on the year. The world’s largest jewelry retailer has taken a hit as consumers face a recession due to inflationary pressures not seen in 40 years. Rising interest rates may improve financing margins, it will impact demand. In tough economic times, discretionary spending like jewelry is one of the first things that get tamped down. Retailers like Macy’s NYSE: M and Nordstrom NYSE: JWN have both faced tightening of consumer wallets. It’s not all bleak for Signet as its brands like Zales, Kay Jewelers, and Jared accommodate the middle to lower-income consumers seeking value. However, these are also the households that get hit the hardest in a recession. Many of these popular brands can be found in shopping malls, outlets, and strip centers. The reopening trend has improved foot traffic after the COVID lockdowns, but demand erosion is a very real threat as the economy slows down and stimulus checks have been spent. Signet was able to improve margins by 60 basis points due to the leveraging of its investments in connected commerce and digital analytics. Nearly 52% of digital orders are levering its flexible fulfillment capabilities. Prudent investors can watch for opportunistic exit levels to ring the register or scale down on shares of Signet Jewelers.

Q1 Fiscal 2023 Earnings Release

On June 9, 2022, Signet released its fiscal first-quarter fiscal 2023 results for the quarter ending April 2022. The Company reported an earnings-per-share (EPS) profit of $2.86 excluding non-recurring items versus consensus analyst estimates for a profit of $2.38, beating estimates by $0.48. Revenues rose 8.9% year-over-year (YoY) to $1.84 billion, beating analyst estimates for $1.81 billion. Same-store sales rose 2.5% YoY. Signet CEO Virginia Drosos commented, “Signet's strong performance this quarter reflects our team's successful execution and agility amidst retail headwinds. We generated nearly 9% topline growth, including 2.6% organic sales growth, enabled by our healthy inventory position, connected commerce capabilities, and data-driven marketing. Customers responded to the breadth and newness within our assortment, particularly higher price point offerings, diamonds and precious metals. Our scale, strong balance sheet, and diversified banner portfolio provide flexibility to navigate macro level uncertainties, deliver consistent annual double-digit operating margin, and continue investing in differentiated capabilities to widen our competitive advantages."

Guidance

Signet provided in-line revenue guidance for fiscal Q2 2023 of $1.79 billion to $1.82 billion versus $1.81 billion consensus analyst estimates. The Company sees fiscal full-year 2023 EPS of $12.72 to $13.47 versus $11.81 consensus analyst estimates. Full-year revenues are expected to come between $8.03 billion and $8.25 billion versus $8.03 billion consensus analyst estimates.

Conference Call Takeaways

CEO Drosos stated that the Company is using its scale to structurally improve its margin profile to deliver double-digit operating margins year after year. They are widening competitive advantages to drive market share growth in a challenging macroeconomic environment. The Company is “sharply focused” on shareholder returns while continuing to invest in its business. They were able to improve operating margin by 60 bps to 10.6% in the quarter thanks to rigorous cost discipline and leveraging of its investments in connected commerce and data analytics. The Company grew bridal sales by more than $80 million over the year-ago period. Connected commerce refers to jewelry shoppers crossing channels seamlessly as two-thirds of its customers cross channels. It’s Vault Rewards loyalty program illustrates that its members spend over 60% more on a transaction than its average customer.

SIG Opportunistic Exit 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 multiple top at the $111.89 Fibonacci (fib) level in November 2021 and proceeded to breakdown and sell-off towards the $49.00 fib before staging a rally. The weekly downtrend is slowing down as the weekly 5-period moving average (MA) flattens at $56.99 and 15-period MA falls at $61.40. The weekly 50-period MA resistance sits at $76.92. The weekly lower Bollinger Bands (BBs) sit at $43.63. The weekly stochastic has stalled just above the 20-band setting up either a cross-up bounce or a mini inverse pup fall through the 20-band. The weekly market structure high (MSH) buy triggers on a breakout above $63.28. The weekly market structure high (MSH) sell triggered on the breakdown below $83.49. The daily rifle chart has been uptrending and setting up another pup breakout as the 5-period MA rises at $58.97 followed by the 15-period MA support at $57.62. The daily 50-period MA sits at $58.16. The daily upper BBs sit at $64.53. The daily stochastic is attempting another cross up near the 70-band to confirm a daily pup breakout. Prudent investors can look to trim or sell their position at opportunistic exit levels between the $65.74 fib on the weekly MSL buy trigger up towards the $83.49 weekly MSH sell trigger. Stop-losses can be considered on a breakdown under the $51.62 double bottom level.