Signet Jewelers Neutral At Goldman Sachs On Visibility Concerns

Signet Jewelers Ltd. (NYSE: SIG) reported disappointing Q2 earnings, while lowering its FY guidance. Goldman Sachs’ Lindsay Drucker Mann maintained a Neutral rating, while lowering the price target from $119 to $102.

Visibility Concerns

Mann prefers to remain on the sidelines until there is better visibility into the drivers of the comp weakness.

“If they are a function of a weak consumer spending picture, catalysts for a reacceleration are likely a few quarters out. If they are a function of internal or execution drivers, SIG will first need to identify those issues and construct a plan of attack before they can improve,” the analyst mentioned.

At the same time, Mann pointed out that Signet Jewelers could be a long-term secular winner, given its meaningful competitive advantages that could drive market share gains in the growing jewelry category.

“We also see opportunity to unlock value through either a sale or optimization of its credit portfolio,” Mann stated.

Disappointing Performance

With regard to the quarterly results, the analyst noted that the business slowed at a “surprising clip,” with comps slowing from the 3-4 percent run rate at the beginning of the year to a decline of 3-4 percent in June/July.

According to the Goldman Sachs report, “Deteriorated comp sales trends come despite higher credit penetration rates at both Sterling of +50 bps and at Zales of +720 bps. The magnitude and consistency of deceleration across major banners is also unnerving.”

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