Q1 2025 Earnings Summary
- Signet is experiencing significant momentum in sales, particularly in the fashion and engagement segments, leading to expected positive same-store sales in the second half of the year. The company reported that Mother's Day week and May overall were in the top half of Q2 guidance, and they continue to see strong sales in their fashion business. Newness sell-through was up 25% versus a year ago, and inventory was down 9% in the quarter despite launching significant newness. This momentum is helping the company lean into what's working and achieve a positive inflection to same-store sales.
- Effective inventory management and growth of the loyalty program are contributing to increased sales and margins. The company is in a very healthy place with inventory, allowing them to quickly spread successful items across their fleet. Their loyalty program is also gaining traction, with a 25% increase in new users in Q1 and a 50% increase in active loyalty members making a purchase, driving fashion purchases and supporting same-store sales growth.
- Strategic initiatives like expanding lab-created diamonds (LCDs) in fashion and partnering with De Beers are enhancing product offerings and margins. Signet grew its LCD fashion assortment by 14% in the first quarter, with an average transaction value more than twice that of non-LCD fashion pieces, providing higher margins. Additionally, the partnership with De Beers aims to educate staff and consumers about the uniqueness of natural diamonds, potentially boosting sales in that segment.
- Profit margins are under pressure due to higher expenses. The company expects margins in Q2 to be impacted by increased marketing expenses, higher staffing costs, and deleverage on fixed costs within SG&A. These pressures may not fully abate in the second half as anticipated, potentially affecting profitability.
- Persistent promotional environment may pressure margins further. Despite not leading with promotions, Signet acknowledges a highly promotional retail and industry environment, with heavy discounting by independent jewelers. To remain competitive, the company may need to increase promotions, which could erode merchandise margins.
- Declining prices of lab-created diamonds could impact revenues and margins. The company notes that the pricing on lab-created diamonds continues to decline due to increased supply and more efficient production. As lab-created diamonds become a larger part of the product mix, especially in fashion jewelry, this could lead to decreased average transaction values and pressure on margins.
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Sales Momentum and Outlook
Q: Has sales momentum continued post-Mother's Day?
A: The company reports strong sales momentum continuing after Mother's Day, with May sales in the top half of their Q2 guidance. They are seeing significant improvement in engagement units and accelerated growth in fashion, driven by newness with sell-through up 25% versus last year. They expect this momentum to lead to their fifth consecutive quarter of same-store sales improvement. -
Margin Outlook
Q: What impacted margins in Q2, and outlook for second half?
A: Margins in Q2 were affected by higher marketing expenses, which improved return on ad spend, higher staffing costs, and deleverage on fixed costs within SG&A. Management expects these pressures to abate in the back half of the year as they inflect to positive comps. -
Engagement Units Recovery
Q: What are expectations for engagement volumes in Q2?
A: Excluding digital banners, they expect engagement units to be up mid-single digits to flat in Q2, reflecting continued momentum and recovery in engagements throughout the fiscal year. They anticipate a positive inflection on the high end of guidance in the back half of the year. -
Lab-Created vs. Natural Diamonds
Q: How is the mix between natural and lab-created diamonds evolving?
A: For engagement rings, customers still predominantly choose natural diamonds, but lab-created diamonds are a good option for price-conscious consumers. In fashion jewelry, the lab-created diamond assortment grew 14% in the first quarter, with average transaction values more than twice the average fashion ATV, providing a trade-up opportunity. -
Promotional Environment
Q: How is the promotional landscape, and how are you responding?
A: The jewelry category remains highly promotional due to over-inventory among independent jewelers. Management hopes the competitive environment normalizes in Q2 and Q3 but hasn't assumed this in plans. They leverage their scale to offer great values through newness and use their loyalty program to provide targeted value opportunities, reducing broad-scale discounting. -
Average Transaction Value Trend
Q: How should we expect ATV to trend this year?
A: Management expects the average transaction value to remain similar to the first quarter, potentially with a slight decline. They are increasing price points in fashion through lab-created diamonds, which provides opportunity, but overall ATV is expected to be stable. -
Share Count and Preferred Dividends
Q: What diluted share count should we use for the year?
A: For the full year, the expected diluted share count is 46.3 million shares, down from 48 million in Q1. They suggest thinking about 46 million shares for the balance of the year. -
Partnership with De Beers
Q: What does the De Beers partnership entail?
A: The partnership with De Beers is an educational opportunity to train the sales team on the specialness and uniqueness of natural diamonds. It will include training and marketing initiatives to help customers understand the difference between natural and lab-created diamonds. -
Newness and Inventory Management
Q: How are you managing newness and inventory across banners?
A: They are infusing newness across all banners, targeting value-conscious customers with sharp price points. Inventory is down 9% in the quarter, reflecting a balanced approach of increasing newness while reducing older inventory. Newness allows for lower promotionality as items are designed to sell out.
Research analysts covering SIGNET JEWELERS.