We came across a bullish thesis on Signet Jewelers Limited (SIG) on Substack by Elliot. In this article, we will summarize the bulls' thesis on SIG. Signet Jewelers Limited (SIG)'s share was trading at $56.30 as of March 20. SIG's trailing and forward P/E were 11.21 and 6.09 respectively according to Yahoo Finance.
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Signet Jewelers, the world's largest diamond jewelry retailer, recently reported Q4 and full-year FY25 results, revealing a 6% YoY revenue decline to $2.35B. Despite the drop, revenue exceeded guidance, with same-store sales down just 1.1%, improving from the full-year 3.4% decline. Margins faced slight pressure due to fixed costs, but merchandise margin expanded. EPS remained stable at $6.62, aided by a lower share count. For FY25, revenue fell 6.5% to $6.7B, though Signet generated $438M in free cash flow, converting 88% of operating income into cash. Management sees signs of stabilization, guiding for FY26 revenue between $6.53B-$6.80B and EPS of $7.31-$9.10, though macro uncertainty remains. A notable concern was $200.7M in digital brand impairment charges, bringing the full-year total to $369.2M, reflecting underwhelming acquisition performance.
Strategically, Signet is intensifying its focus on bridal jewelry, which makes up half of its sales, while expanding into the larger fashion jewelry market. A 1% share gain in bridal equates to $100M in sales, while fashion jewelry offers a $500M opportunity. The company is restructuring around four brand clusters -- Core Milestone (Kay, Peoples), Style & Trend (Zales, Banter), Inspired Luxury (Jared, Diamonds Direct), and Digital Pure Play (Blue Nile, James Allen) -- to centralize operations and unlock efficiencies, targeting $50M-$60M in savings next year and $100M annualized. Real estate optimization continues, with 150 underperforming store closures and 200 relocations to off-mall locations, which have historically boosted sales.
Capital returns remain aggressive, with ~$1B in share repurchases reducing the share count by 20%, leaving $723M still authorized. The dividend was raised 10% to $0.32 per share, marking four consecutive increases. FY25 CapEx was $153M, below historical levels, reflecting a shift toward optimizing existing locations. Signet ended the year with $1.7B in liquidity and no near-term debt maturities, preserving financial flexibility.
The industry's biggest shift is the rise of lab-grown diamonds (LGD), which saw 40% growth in Signet's fashion segment. However, the company struggled to meet demand in the $200-$500 range, signaling inventory planning issues. LGD is reshaping pricing, but Signet is balancing this by keeping natural diamonds aspirational while using LGD to expand margins in fashion. High-income consumers remain resilient, while mass-market buyers are more cautious, requiring differentiated strategies. Signet also struggled with key gifting price points during the holiday season, reinforcing the need for improved inventory management.