Prestige watch sales fail to offset jewellery weakness at Ernest Jones and H.Samuel

Ernest Jones store

Signet Jewelers, which owns H Samuel and Ernest Jones, has reported a tough third quarter with total sales down 2.5% to $1,156.9m (£874.3m).

The company says the sales decline for the 13 weeks ended October 28, 2017, was primarily driven by soft bridal sales and a lower number of customer transactions. These were offset in part by the strength in eCommerce, with sales online increasing by 56.4% to $80.7m (£60.9m). Same-store sales decreased by 5.0%.

Same store sales in the UK dipped by 5.1% compared to the same period last year, with H Samuel and Ernest Jones declining by 4.6% and 5.6% respectively. Signet says this decline was driven principally by non-branded jewellery, offset in part by higher sales in select watch brands.

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Overall, in the third quarter of the year H Samuel posted sales of $61.6m (£46.5m), while Ernest Jones had slightly higher results at $66.8m (£50.4m).

Gross margin in the UK jewellery division decreased by $321.1m (£242.4m).

Virginia C. Drosos, chief executive officer of Signet Jewelers, comments: “Signet had a challenging third quarter. In addition to an anticipated sequential slowdown in our same store sales, unfavorable weather-related incidents, along with unexpected disruptions during the transition of our credit services, further negatively impacted results. Encouragingly, within this backdrop, we advanced our strategic priorities, which are beginning to deliver results.”

She continues: “We are seeing positive customer reaction to enhancements in our omni-channel experience, as well as streamlined marketing messages and improved fashion assortment. We have also implemented several synergies from the R2Net acquisition ahead of plan. Unfortunately, these wins are being overshadowed by the systems disruptions and significant process changes associated with the outsourcing of our credit portfolio, with particular impact at Kay. While the identified systems issues are behind us, we expect some credit process disruption to continue and to negatively impact our fourth quarter and full-year performance. As a result, we now expect our fourth quarter same store sales to be down low- to mid-single digits, leading to Fiscal 2018 same store sales down mid-single digits and earnings ranging from $6.10 to $6.50 per share.”

On October 23, 2017, Signet completed the first phase of strategic outsourcing of its credit portfolio to Alliance Data Systems (“Alliance Data”) and Genesis Financial Solutions (“Genesis”). As part of the first phase, Alliance Data acquired the prime credit quality portion of Signet’s existing credit portfolio and became the primary provider of credit to Signet’s customers, while the credit servicing functions of the non-prime book has been outsourced to Genesis.

Signet is experiencing greater than anticipated disruptions related to the complex credit transition process. Signet and its credit partners are working with great urgency to resolve these issues, and while the critical majority of the systems-related issues have been identified and restored, the Company expects the financial impact to carry forward into the fourth quarter given the significant changes to the credit-related processes.

As a result, Signet now expects Fiscal 2018 SSS to be down a mid single-digit percentage and EPS to be in the range of $6.10 and $6.50.

The Company is in advanced discussions with interested funding partners related to the second phase of its credit outsourcing, which is expected to be completed in the first half of calendar year 2018.

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