Signet Jewelers: Still Worth Trying On (NYSE:SIG)

In an ideal world, any company that you invest in would go on to generate even better fundamental performance than it had in the past. But the beautiful thing about value investing is that you don’t always need this to occur in order to achieve upside, particularly if the shares that you purchase are done so at a very low trading multiple. A great example of this can be seen by looking at a behemoth in the jewelry market known as Signet Jewelers (NYSE:SIG).

From 2023 through 2024, the company saw revenue and some of its cash flow figures worsen. And when it comes to the 2025 fiscal year that the business is now in, some pain is expected to continue. You would think that a company experiencing this kind of trouble would see some pain from a share price perspective as well. But because of how cheap the stock is, market participants haven’t been able to get enough of it. Since I last rated it a ‘buy’ back in August of 2023, shares of the company have skyrocketed by 80%. That dwarfs the 18.6% increase seen by the S&P 500 over the same window of time. You would think, given this upside and the pressure the firm has seen from a fundamental perspective, that I would now turn neutral or bearish on the business. However, I would argue that just enough upside still exists to warrant the ‘buy’ rating remaining in place.

A great price

Fundamentally speaking, things have not been particularly pleasant for Signet Jewelers. Consider financial performance from 2023 to 2024. Revenue for the company dropped during this window of time by 8.6%, falling from $7.84 billion to $7.17 billion. This was driven in large part by an 11% decline in same store sales for the company, which is on top of the 6.1% drop seen from the 2022 to 2023 fiscal year. According to management, this was driven by inflationary pressures that had a negative impact on the discretionary spending of consumers. A reduction in engagements also caused the bridal category to suffer by an unspecified amount.

We do know that nearly all of this pain can be attributed to a decline in the number of transactions. There was a modest decrease for the international operations when it came to the average transaction size in 2024 compared to 2023, but that downside was only by 0.6%. In North America, however, pricing was actually up by 2.4%, though this was more than offset by an 11.5% plunge in the number of transactions. The only bright spot in 2024 from a sales perspective was the ecommerce side of the business. Revenue there totaled $1.64 billion, which was about 2.6% above the $1.60 billion generated one year earlier.

Even though revenue took a hit, profitability for the company improved drastically, with net income more than doubling from $342.2 million to $775.9 million. The company’s gross profit margin during this time grew from 38.9% to 39.4%. This was thanks to higher merchandise margins, driven not only by a higher mix of services provided to customers, but also because of cost savings initiatives. What really affected the company in a negative way, however, was a surge in other non-operating expenses driven in large part by $133.7 million in the form of a pension settlement. The company also was on the hook for $74.5 million in 2023 compared to the $170.6 million it got back in 2024. Other profitability metrics were rather mixed. Operating cash flow fell from $797.9 million to $546.9 million. But if we adjust for changes in working capital, we would get an increase from $645.7 million to $837.9 million. You would think that this would result in EBITDA improving as well, but that would be incorrect. It actually managed to fall from $1.06 billion to $844 million.

In the long run, there is tremendous opportunity for Signet Jewelers. Just last year, management said that the firm operates in a $77 billion global market. Over the next three to five years, the company hopes to grow revenue to between $9 billion and $10 billion, with its share of the US market expanding from 9.7% last year to between 11% and 12%. The company sees a number of opportunities that can help this. For instance, it thinks it can capture another billion dollars or more in revenue on an annualized basis by focusing on the accessible luxury market. Services are expected to bring in another $0.5 billion, while a recovery in the engagement market should add $0.6 billion in sales to the business. Other miscellaneous opportunities like improving its digital presence and focusing on marketing should help to push sales up by another $0.5 billion. In terms of market emphasis, the company does seem to think that the gifting space offers nice upside. $17 billion worth of revenue exists there when it comes to jewelry alone.

Unfortunately, it’s unlikely that 2025 is going to be the year that recovery takes place. Management expects revenue to actually decline for that year, with sales of between $6.66 billion and $7.02 billion. This should be driven by same store sales that fall as much as 4.5%, but that could come in slightly positive to the tune of 0.5% if all goes well. Profitability is expected to take a hit as well, with the midpoint of earnings per share guidance translating to net profits of $528.1 million. Management believes that EBITDA for the year will be between $780 million and $865 million. If we use the midpoint as guidance, that should translate to adjusted operating cash flow of around $816.6 million.

Using these figures, I was able to value the company as shown in the chart above. That chart also shows actual results for the 2024 fiscal year. As you can see, the stock does get a bit more expensive. But on an absolute basis, it still looks very cheap. In the table below, I then compared it to three similar firms. On both a price to earnings basis and a price to operating cash flow basis, Signet Jewelers ended up being the cheapest of the group. And when it comes to the EV to EBITDA approach, only one of the three was cheaper than it.

Click to enlarge

Pricing aside, management is making some other interesting moves. For starters, the company has net cash in the amount of $1.23 billion. Or at least that’s what it was as of the end of the most recent quarter. Subsequent to the quarter, the company used $414 million of that to buy back half of the preferred stock that it has outstanding. Management is also using capital to buy back common units as well. In the 2024 fiscal year alone, the company bought back 1.9 million shares for $139.3 million. By the end of the 2024 fiscal year, the company had $650 million left under its share buyback program. However, the firm did decide to increase that authorization to $850 million. It’s also worth noting that the firm is targeting $350 million in cost cutting opportunities over the next three years. So even if revenue does not grow, the bottom line should improve to some degree.

Takeaway

Based on all the data provided, it seems to me as though Signet Jewelers is making some very interesting moves that should add value for shareholders in the long run. In general, I am not a huge fan of share buybacks. The exception involves preferred units and when stock looks very cheap. Both of those instances exist here. Add on top of this the net cash position that this player has and the long-term opportunities that the company is targeting, and I do believe that the ’buy’ rating I assigned the stock previously still makes sense today.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.