Signet Jewelers Ltd. (SIG): This Stock Can Add Shine to Your Portfolio

Page 1 of 2

Most people might cut back on discretionary spending for their own pleasure when times are bad, but tend to still show their appreciation for their loved ones. The stellar financial track record of Signet Jewelers Ltd. (NYSE:SIG), the largest specialty jeweler in the U.S. and the U.K., bears testimony to the resilience of bridal purchases and gift giving. Signet has an edge over competitors with its in-house credit program, and has plans in place to enhance its U.K. margins. Signet Jewelers Ltd. (NYSE:SIG) represents a compelling value proposition, trading at a significant discount to its peers.

Resilient business with unique buying behaviour

Signet Jewelers Ltd.Signet Jewelers Ltd. (NYSE:SIG)’s customers buy jewelry for two major reasons: weddings & anniversaries and gift giving. There is a certain element of resilience associated with these type of purchases. Holidays and birthdays are spread out through the calendar year, providing customers with the necessary ‘justification’ to spend on gifts for family and friends. In contrast, other consumer discretionary purchases, such as cars and consumer electronics, tend to be either impulse purchases or new product-driven. Also, since weddings are typically planned in advance, there tends to be a lag effect with respect to deferred weddings, which provides buffer for reduced gift purchases or downgrades to lower price points during bad times.

The financial numbers lend support to this argument. Signet Jewelers Ltd. (NYSE:SIG) has delivered positive earnings and free cash flow in nine out of the past 10 years, and also grew revenue and EPS by a 10-year CAGR of 4.2% and 5.8%, respectively.

In-house credit provides an edge

Anyone who is married knows the amount of time, effort, and money required to make the wedding a memorable affair. Similar to retailers which provide in-house credit for newly weds’ purchases of home appliances and furniture for their new home, couples who are operating on a tight budget on their wedding will definitely appreciate some form of financial aid to buy the most sparking diamonds to make the bride look gorgeous.

According to its most recent 10-K, in-house credit sales accounted for 56% of Signet Jewelers Ltd. (NYSE:SIG)’s U.S. sales for the past two fiscal years, reflecting the significant amount of customers attracted to and relying on its in-house credit. In-house credit provided by retailers is becoming increasingly important, with a significant number of Americans being either unbanked and under banked.

In addition, Signet’s customers are able to get their credit approved online or at in-store terminals. Management also estimated at its recent earnings conference call that the lifetime value of a credit customer is more than three times greater than that of a non-credit customer. This is hardly surprising, as lender-borrower relationships tend to be sticky and breed customer loyalty.

Getting U.K. back in shape

U.K. accounts for around one-fifth of Signet’s revenue, but below one-tenth of its operating income. Signet targets to increase its U.K. operating margins to 10% by fiscal 2015 by improving product mix, reducing overheads, and optimizing its real estate portfolio. With respect to the last point, Signet outlined plans at its recent investor conference to relocate some of its stores in the U.K. to more suitable areas to enhance traffic conversion rates.

Peer comparison

Signet’s peers include Tiffany & Co. (NYSE:TIF) and Blue Nile Inc (NASDAQ:NILE)

Like all other luxury retailers, Tiffany faces a Catch-22 situation, where it has to decide between maintaining price points to protect its brand image, or lowering price points to expand its customer base. At its fiscal 2012 earnings conference call, Tiffany mentioned that it will introduce new designs in 2013 with entry-level price points below $500, which is likely a response to critics that it has not focused sufficiently on the lower price segment. I would have preferred Tiffany & Co. (NYSE:TIF) to maintain its focus on high-end jewelry segment to avoid brand dilution.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!