Shares of Signet Jewelers Limited (SIG Quick QuoteSIG - Free Report) rose 9.1% as the company posted solid first-quarter fiscal 2023 results, wherein the top and bottom lines cruised past the Zacks Consensus Estimate and grew year over year. The company’s impressive sales performance was backed by its healthy inventory status, data-driven marketing and connected commerce capacities. Customers’ favorable response to Signet’s assortments, especially high price point offerings, precious metals and diamonds, also drove results.

While the company encountered softening in lower price points stemming from increased inflation and the absence of a stimulus, it countered these through digital capacities, tailored assortments and better services to retain the increased average transaction value (“ATV”).

Quarterly Details

Signet reported adjusted earnings of $2.86 per share, beating the Zacks Consensus Estimate of $2.29. The bottom line rose 28.3% from the year-ago quarter figure of $2.23.

This jewelry retailer generated total sales of $1,838.3 million, surpassing the Zacks Consensus Estimate of $1,809 million. The top line also increased 8.9% year over year. Same-store sales rose 2.5% year over year.

A Sneak Peek Into Margins

The adjusted gross profit in the reported quarter amounted to $728 million, up from $678.4 million in the year-ago fiscal’s comparable quarter.

SG&A expenses came in at $533.1 million, up from $512 million in the prior fiscal year’s comparable quarter. SIG reported an adjusted operating income of $194.6 million, up from the $168.9 million recorded in the year-ago fiscal quarter. As a rate of sales, the adjusted operating margin expanded 60 basis points to 10.6%.

Segment Discussion

Sales in the North America segment increased 5.4% year over year to $1.7 billion. Same-store sales fell 0.9% from the year-ago quarter’s levels due to lower number of transactions, partly compensated by a rise in ATVs. ATV rose more than 19% year over year.

Sales in the International segment surged 91.6% year over year to $110 million. Same-store sales in the segment increased 102.6% year over year, reflecting the impacts of increased ATVs and the number of transactions and operating restrictions in the year-ago period.

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Financial Details

Signet ended the quarter with cash and cash equivalents of $927.6 million, accounts receivable (net) of $17.1 million and inventories of $2,216.2 million. The long-term debt was $147.1 million at the end of the reported quarter. Total shareholders’ equity was $1,256.8 million at the end of the quarter.

In the first quarter of fiscal 2023, Signet used net cash of $135.5 million from operating activities. It had adjusted free cash flow of a negative $156.3 million as of Apr 30, 2022.

As of Apr 30, 2022, the company bought back roughly 4.3 million shares for $318.2 million. Management also expanded its buyback authorization by $500 million. SIG has buybacks worth nearly $645 million left under the expanded authorization. The company’s board declared a quarterly cash dividend of 20 cents per share for the second quarter of fiscal 2023. This dividend is payable on Aug 26, 2022 to shareholders of record as of Jul 29.

We note that Signet had 2,854 stores as of Apr 30, 2022.

Guidance

Signet reiterated its guidance for fiscal 2023. It continues to expect total revenues in the band of $8.03-$8.25 billion, up from the $7.83 billion delivered in fiscal 2022. The adjusted operating income is still anticipated in the range of $921-$974 million, suggesting a rise from the $908.1 million recorded last fiscal.

Adjusted earnings per share (EPS) are envisioned in the bracket of $12.72-$13.47 in fiscal 2023 compared with the $12.28 earned in fiscal 2022.

Capital expenditures for the fiscal are likely to be nearly $250 million.

For the second quarter of fiscal 2023, management expects revenues in the range of $1.79-$1.82 billion. The adjusted operating income is expected in the range of $188-$204 million.

Management’s guidance assumes some consumer pressure, which includes inflation and the stimulus impact similar to current levels. It expects a certain shift in consumer discretionary spending from the jewelry category, indicating the decelerating levels of consumer confidence and the pent-up demand for experience-oriented categories in the fiscal year. This company’s initiatives to lower supply-chain hurdles have been effective so far and management does not expect any considerable bottlenecks in the availability of inventory.

Shares of this Zacks Rank #4 (Sell) player have declined 22.5% in the past six months compared with the industry’s decline of 38.6%.

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