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Since 2018, Signet Jewelers
Brilliance is an apt moniker for a jewelry company strategic plan, given the high refractive index of a diamond that makes it sparkle.
On its brilliance journey, the company has reported continued improvement, even in the worst circumstances during the pandemic year. But in its second-quarter fiscal 2022 ending July 31, it reached a new milestone.
Signet is not just reflecting light. It is radiating light from within. And CEO Gina Drosos was glowing as she reported her company’s results. Shares of the company’s stock on the NYSE ended the day on a 12-month high at $85.26.
Signet shines bright
Signet revenues reached $1.8 billion, doubling that from same quarter last year. But even more impressive sales were up 31% over same quarter in 2019.
Same-store sales took an even bigger leap, rising 38% over two years ago. This despite having 450 fewer stores, a 16% reduction. Rapidly-growing e-commerce sales more than filled the gap, rising 25% over the same period last year when many of its stores were closed and more than doubled from two years ago.
Drosos explained the Inspiring Brilliance plan “is built on four where-to-play strategies: winning in our biggest businesses, accelerating services, expanding accessible luxury and value, and leading in digital commerce.”
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And she added, “If winning in our biggest businesses is our foundation, then leading in connected commerce is our accelerator. The two together combined with services and mid-market expansion are multipliers.”
Given this quarter’s strong performance, Drosos also announced, “We are raising our guidance for the year, reflecting our business strength and confidence in our growth strategy.”
Despite potentially troubling headwinds given the uncertainties through the end of the year, Signet is projecting it will end fiscal 2022 with sales in the $6.8 to $6.95 billion range, up from $6.5 to $6.65 billion previously projected.
All retailers, but most especially ones like Signet that depend on discretionary spending, are challenged by rising prices, short supply of in-demand products and the threat of the Delta variant as the holiday season approaches.
Drosos tells me all of these unknowns are baked into the company’s latest guidance.
Hedges against inflation
Jewelry has been hard-hit by inflation, rising 10.1% in the past twelve months through July 2021. From an internal cost perspective, Drosos says the company is well positioned to absorb rising costs thanks to cost savings and its working capital management.
“Our cash flows have been significant and our cash position is very healthy, which gives us a lot of agility to weather macroeconomic changes,” she explains.
On the consumer front, she expects some consumers to feel inflation’s pressure as government stimulus wanes and the cost of essentials, like food, gasoline and housing, goes up. But the company’s consumer insights reveal 80% of customers feel they are the same or better off financially since Covid.
“Higher-income consumers are feeling strong financially and will be shopping for jewelry at holiday. Jewelry is a lasting and meaningful gift that holds it value,” she explains.
This is backed up by results seen for Valentine’s Day and Mother’s Day, besides Christmas the biggest jewelry gifting holidays. People spent more on those holiday gifts earlier this year with average transaction value up 18% over two years ago. Drosos expects the trend to continue.
The company’s reliance on engagement and wedding jewelry also provides a cushion for inflation headwinds with people spending more in the category. “Bridal represents about half of our revenue,” she says, adding that the company’s research indicates some 2.3 million couples plan to get engaged this year, which is up high single-digits compared to the pre-pandemic year.
Signet is already seeing a bridal jewelry boom, with sales of bridal up 25% over two-years ago. “A lot of people begin shopping for engagement rings in October with people getting engaged toward holiday and New Year’s,” she says.
And because more couples are celebrating weddings now after being delayed by the pandemic, she foresees added tailwinds for Signet’s bridal business. “We know that people who are in or attend a wedding are more likely to get engaged. Weddings make you think about who you love,” she adds.
The company’s strong e-commerce presentation of bridal jewelry is further assurance that it is positioned to attract the attention of engaged couples. “While couples still predominantly buy bridal in-store, some 30% of couples in 2021 said they bought an engagement ring online, that’s double was it was in 2019,” she says.
Thanks to improved bridal search and online browse functionality, Drosos expects many couples will land on its pages and show up at one of its stores.
“All of our store teams have gotten very comfortable using technology,” Drosos says. “Through their iPads they can access every bit of Signet inventory. So if you walk into Kay, our jewelry consultants can access merchandise from Jared to find what they are looking for. Because of this our closure rates are up double digits versus where they were two years ago. Before, they could only sell what they had in their case.”
Secure supply chain
Being the nation’s largest jewelry retailer puts Signet in the driver’s seat when it comes to getting the supply it needs from its producers. “We’ve seen incremental increases in our shipping costs, but we’ve been able to mitigate that somewhat because of the relationships with our vendors,” she relates.
Reporting that about 50% of holiday orders are already in hand, she expects the rest to be delivered as expected. If things unexpectedly go sideways, she says they have the ability to pull forward Valentine’s Day orders to arrive in December.
The backend work the company has been doing in inventory management also provides a cushion for any supply chain glitches. It’s been turning inventory faster, bringing in more productive lines and moving them around if an item might sell better in a different location. The company reports this has resulted in a 40% improvement to inventory turn, along with a reduction in overall inventory levels.
Health and safety protocols in place
The company’s experience navigating the pandemic has positioned it well for the Delta variant threat. With no massive store closures expected, the company has a robust e-commerce capability, buy-online-pickup-in-store, concierge delivery, ship from store and virtual consulting ready to pick up the slack if customers are fearful of coming into the store.
Virtual consulting, in particular, has been a big win for Signet. “Our virtual consultants establish a human connection through these conversations and help drive higher conversion rates.” For example, over 70% of appointments made through virtual consulting at Ernest Jones result in a sale and the average spending is four times what it would be for a walk-in client.
“We continue to believe that blending physical and virtual experiences will be a core customer expectation for fine jewelry and a Signet competitive advantage for years to come,” Drosos says.
While company data suggests that younger unvaccinated consumers aged 18 to 49 years will remain cautious about in-store shopping, the company also doesn’t foresee these customers shifting spending toward travel and experiences either. This will work in the company’s favor, as well.
Regarding the safety of its over 20,000 employees, Drosos says the company has not mandated vaccinations. Instead it is providing information through town hall meetings with a major Cleveland healthcare institution to provide real data from medical professionals to help employees make the right personal decision. As a result, she reports the company has higher vaccination rates than the average.
Data provides the competitive edge
Throughout my discussion with Drosos and her earnings call, she kept highlighting data, both insights from consumer studies and findings from the company’s internal data collection. The data really talks to me, as it does for Edward Deming, who famously said, “In God we trust, but all others must bring data.”
In the data department, Signet has it all over its competitors, and it shows. “We’re the largest specialty jewelry retailer in the world. So we have more purchase data, more website data, more traffic data in stores than anyone else in the jewelry category,” she says. “And it’s really making a difference in all parts of our business.”
A fundamental strategy for the company’s brilliance transformation was putting the customer first and that meant getting close to the consumer. So the company launched its first ever internal consumer research function. Then it set up a separate data and analytics function. Combining the external and internal data has led the company to make better decisions and to put more distance between it and its competitive set.
The benefits flow throughout the organization into marketing, product selection, inventory allocation, cash management and making appropriate investments to grow returns to shareholders.
“Our consumer insights and data analytics are impacting many different parts of our business,” she concludes. “They come together so we can lower our underperforming inventory, get newness with highly productive inventory that gets to the customer faster. Our closure rates go up and that all flows to the bottom line. It’s a good news story all around.”
