Shares of the jewelry company that owns the Kay, Zales and Jared chains tumbled as much as 11 percent after second-quarter results trailed analysts’ estimates, renewing concerns that diamond-swapping allegations could be hurting its reputation.
Profit at Signet Jewelers Ltd. was $1.14 a share, excluding some items, in the period ended July 30, the Akron, Ohio-based company said Thursday in a statement. Analysts estimated $1.45, on average. Sales fell 2.6 percent to $1.37 billion, missing analysts’ $1.44 billion projection. The company also cut its forecast for the year.
The results suggest that new shoppers may have been deterred by a drumbeat of negative reports alleging that Signet’s chains swapped out customers’ gems for lower-quality stones when they brought their jewelry in for service. Signet has denied those accusations and on Thursday attributed the weaker performance to challenging market conditions in energy-dependent regions of the U.S., which have been hurt by declining oil prices.
“Although a second-quarter miss and fiscal-year guidance update were expected, the magnitude of both was worse than the market was thinking,” Brian Tunick, an analyst at RBC Capital Markets, said in a note.
Forecast Cut
Profit will be $7.25 to $7.55 a share in the current year, the company said. That’s down from a previous projection of as much as $8.55 and trails analysts’ $8.24 average estimate.
The shares fell as low as $85.19 in New York, the biggest intraday drop since June 2. Signet already had slid 23 percent this year through Wednesday.
In a bid to restore investors’ confidence, the company announced a $625 million stock buyback, funded by an investment of the same amount from private equity firm Leonard Green & Partners. In exchange for the infusion, the firm will receive convertible preferred shares and Signet will expand its board to add Leonard Green managing partner Jonathan Sokoloff as a director.
Signet also is reviewing its in-house credit operations after investors raised concerns that the company relies too heavily on the business for profit. That initiative is proceeding “according to plan,” Signet said.
(Updates with analyst’s comment in fourth paragraph.)
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