Signet Jewelers Sales Jump 9%, Records $190 Million Gender Bias Settlement Charges

Scott Peters
09 Jun, 2022
New York City

Signet Jewelers, the operator of Kay, Jared, and Zales brand stores, said sales in the U.S. were nearly flat and litigation charges wiped out quarterly earnings. 

Sales in the first quarter rose 8.9% to $1.8 billion on a same store sales increase of 2.5%. 

Same store sales in North America declined 0.9% in the quarter but total sales increased 5.4% to $1.7 billion on higher average transaction volume and fewer transactions. 

International sales surged 91.6% to $110.0 million after the lifting of pandemic restrictions allowed stores to reopen. 

Gross margin was $723.7 million, or 39.4% of sales, down 80 basis points to the first quarter last year. 

Selling, general, and administrative expenses were $533.1 million or 29.0% of sales, 130 basis points improvement from a year ago. 

In the quarter, the company swung to a net loss of $92.1 million from net income of $129.8 million a year ago. 

The company reported a loss partly reflecting a legal settlement expense of $190.0 million. 

In the quarter the retailer reported diluted loss per share of $1.89 from net income per share of $2.23 a year ago. 

Inventories at the end of the quarter increased $200 million to $2.2 billion largely reflecting the acquisition of Diamonds Direct in November 2021. 

Diamonds Direct USA Inc is based in Charlotte, North Carolina and operates 22 stores in 13 states. 

In an all cash transaction, Signet acquired Diamonds Direct for $490 million.  

Cash used for operating activities were $135.5 million, a decline of $297 million from a year ago driven by inventories replenishments. 

In the quarter the company repurchased 4.3 million shares at an average cost per share of $73.42 or $318.2 million of its own shares including $50 million in the previously announced accelerated repurchase agreement. 

The retailer opened 14 stores and closed 13 and ended the quarter with 2,507 stores. 

Litigation Charges 

On June 8, 2022 the company reached a preliminary settlement of $175 million for women employees' claims arising from its pay practices and promotion policies. 

The class action lawsuit filed in 2008 included 68,000 women who had worked at stores between 2004 and 2018.

About $125 million will be awarded to claimants, approximately $1,838 per person, and $50 million will be paid to attorneys of claimants. 

As a result of the proposed settlement, the company recorded a pre-tax charge of $190 million in the first quarter. 

The settlement charge includes the payments to the claimants and attorney fees and costs, estimated employer payroll taxes, and class administration fees. 

If the agreement is approved, the company expects to fund the settlement in the third quarter of fiscal 2023. 

The retailer entered in a class action legal settlement of $240 million in March 2020 filed by shareholders for not disclosing allegations covering sexual harassment and subprime loans included in the customer loan portfolio. 

Guidance and Outlook 

The retailer guided second quarter sales between $1.79 billion and $1.82 billion and reaffirmed full-year sales between $8.03 billion and $8.25 billion and diluted earnings per share between $12.72 and $13.47.  

The company plans to pay 20 cents a share dividend on August 26, 2022 to shareholders of record on July 29, 2022 

The company estimated capital expenditure in the year at $250 million. 

Company and Stock 

Signet Jewelers operates 2,507 diamond jewelry stores spread over 4.2 million square feet. 

Of the total stores, 2,412 are located in the U.S., 94 in Canada, 335 in the U.K., 10 in Republic of Ireland, and 3 in Channel Islands.   

Signet Jewelers Ltd soared 9.2% to $67.93 after the release of earnings and trimmed this year's loss to 27.3%. 

The bridal sales are about half the total sales and the company is likely to benefit as the number of weddings rebound from the low of 1.3 million in 2020 to above the 2.2 million pre-pandemic annual average.