J.P. Morgan Initiates Coverage On Signet Jewelers At Overweight
February 01, 2011 10:36 AM
With its Kay and Jared divisions helping capture 9-10% share of the domestic specialty jewelry market, Signet Jewelers (NYSE: SIG) appears well equipped to capitalize on the evident higher-end US recovery.
Historically, jewelry industry upturns typically last 3-4x as long as the downturns. Even better, with 10-15% capacity having been removed from the industry since ‘08, a more rationalized environment means Signet could leverage its competitive strengths, including its industry-leading marketing budget, proprietary in-house credit operations and growing exclusive product assortment, to fend off weaker competitors.
Longer term, J.P. Morgan believes SIG can take operating margins from 10.6% in FY11 past the previous peak of 13.5%. Keep in mind that when the company reached previous peak operating margins, it was expanding footage at a HSD pace, the lower-margin Regional brands made up 20% of the US business, and less than 30% of Jareds were mature. Now, it is rationalizing underperforming stores, taking down its exposure to the Regional brands, and has more than 70% of Jareds nearing maturity.
J.P. Morgan has an Overweight rating and $50 PT on SIG
SIG is trading higher at $43.62
