Signet Jewelers Ltd. (SIG), Fossil Inc (FOSL): This Jewelry Stock Can Make You Rich

This has been a tough year for luxury brands. Low disposable income, poor demand, and rising commodity prices have affected all major retailers. As a result, most retailers witnessed a poor holiday season with low growth in sales. Amidst all this, jewelry retailer Signet Jewelers Ltd. (NYSE:SIG) managed to outshine the others. The company recently announced strong fourth-quarter results. Let’s check them out.

Signet Jewelers

Solid figures

Total sales were up 11.8% to $1.51 billion. Operating income increased 9.8% to $267.7 million as compared to last year. Diluted earnings per share improved 18.4% to $2.12 while same-store sales grew 3.5%.

Approximately 80% of the company’s operations are concentrated in the U.S., where it witnessed an increase in same-store sales by 4.9%. Total sales in the U.S. were up an impressive 14.2% from last year, the major reason being increased transactions at Kay, brought about by changes in the sales mix. For the full year, the company witnessed an increase of 16.6% in earnings per share.

One reason behind the robust sales figures in the previous quarter was the acquisition of Ultra, a jewelry retailer, for approximately $57 million in cash. The acquisition was expected to add $40-$45 million to Signet Jewelers Ltd. (NYSE:SIG)’s sales in fiscal 2013, and the company saw a strong 4.7% rise in same-store sales in the U.S. driven by the acquisition.

Watch me?

However, one segment where Signet Jewelers Ltd. (NYSE:SIG) lost out in the previous quarter was the sale of watches. Same-store sales at Jared declined 5.5%, mainly due to the discontinuation of Rolex watches. Even in the U.K., a decline of 1.9% in same-store sales was witnessed. Decrease in store traffic, increasing sale of low margin products, and lower supply of Rolex watches have been quoted as major reasons behind the decline in U.K. sales.

In this regard, it seems that Signet Jewelers Ltd. (NYSE:SIG) may be losing out to rivals like Fossil Inc (NASDAQ:FOSL), which has seen witnessed strong sales growth in recent times. Last quarter, the luxury watch maker managed to show solid sales growth in all geographical regions, including Europe. In North America, net sales grew a whopping 15%, while Asia saw an increase of 19%. Fossil Inc (NASDAQ:FOSL) expects its sales to grow approximately 16% next year.

From now on

Signet Jewelers Ltd. (NYSE:SIG) has announced an increase in its quarterly cash dividend. The dividend is up $0.03 to $0.15. For the year ahead, the company expects a growth of 5%-7% in same-store sales. Diluted earnings per share are expected to be between $1.07 and $1.12. Signet Jewelers Ltd. (NYSE:SIG) plans to expand its U.S. operations further by opening 65-75 new stores. The company also plans to integrate Ultra stores to its existing store network.

Better than you?

As compared to its closest competitor, Signet’s quarterly results are outstanding, to say the least. Tiffany & Co. (NYSE:TIF), the specialty jeweler, posted a decline of 2% in same-store sales in the U.S. in the previous quarter.

Increase in Tiffany’s total sales for the quarter was also modest — up 4% to $1.2 billion. Unlike Signet, Tiffany & Co. (NYSE:TIF) is exposed to currency fluctuations in Asia along with the European crisis. Despite having a much stronger brand presence and higher profit margins than Signet, the blue box brand could not match Signet’s figures in the previous quarter.

The Foolish bottom line

Currently, Signet’s shares are trading at an all time high. The company has managed to outperform most companies in its segment, despite a weak holiday season. Signet’s performance shows it can give some strong competition to bigger luxury brands. Although much smaller than Tiffany, Signet has generated greater revenue than Tiffany over the last twelve months. While Signet’s revenues were $3.98 billion, Tiffany generated $3.79 billion over the same period. Further, Signet’s profit margin of 9% is catching up fast with Tiffany’s 11%.

Signet’s foothold in the U.S. is getting stronger. This could only mean one thing — this company is only getting bigger and you should keep an eye on it.

The article This Jewelry Stock Can Make You Rich originally appeared on Fool.com and is written by Sonam Chamaria.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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