Where will Signet Jewelers’ stock price be in three years?

signet jewelers (SIG -1.02%) Despite not getting much attention on Wall Street, jewelry stocks have dominated the market over the past three years. The stock is up nearly 300% since early 2020, but S&P 500 As the chart below shows, during that time it made only a small profit.

SIG chart

SIG data by YCharts.

A combination of new management, a revamped omnichannel strategy, and smart acquisitions have boosted earnings and put the company on a long-term growth trajectory.

Management took the opportunity to tout its performance and claim shares at last Tuesday’s Investor Day event. Investors seemed to like the company’s remarks, as the stock rose 3.6% on Tuesday and another 1% on Wednesday.

The company also laid out a roadmap for the next few years. Let’s see what the company had to say and where it stands three years later.

Parents putting necklaces on their daughters.

Image Source: Getty Images.

Engagement tailwinds are returning

Signet just reported lower sales in the fourth quarter and flat sales in fiscal year 2023, which ended in January. The company faces similar headwinds as any other consumer-facing business, and it’s hard to compare to his 2021 economy, when consumers were cash-rich, and services such as travel and restaurants struggled. It also includes changes in spending habits of

The company also indicated a slight decline in sales this year as these trends continue. But there are other hidden reasons for these headwinds.

Engagement is down because the pandemic has delayed the formation of new relationships. But that trend is expected to reverse by the end of the year, providing a tailwind for the next few years, supporting the company’s growth as half of its revenue comes from engagement and bridal purchases.

The company expects the bridal category to recover by 20% to 25% in the 2024-2026 calendar. Bridal channels tend to be recession-proof as couples get married and spend money on engagement and wedding rings regardless of the state of the economy.Even if the economy falls into recession, we have to support the company.

real estate renovation

Signet, the world’s largest retailer of diamond jewelry and the parent company of Kay, Jared and Zales Banner, is also focused on rethinking its real estate footprint. The company is closing underperforming stores, moving its bases away from malls, and finding better traffic in its outlet centers.

Over the past five years, the company has closed 21% of its stores, ending with 2,808 stores in 2023. Currently, 40% of its stores are in off-mall channels, bringing in more than 50% of his sales. It also leverages real estate by integrating stores with digital platforms and offering high-margin services such as repairs and warranties.

raise the bar

The company now expects annual revenue to grow from $7.8 billion to $9 billion to $10 billion over the next few years. $600 million comes from engagement tailwinds and growth from larger banners like Kay and Zales.

Signet also expects $1 billion in growth in accessible luxury segments such as Jared, Diamond Direct, James Allen and Blue Nile, driven by store expansion and improved digitalization. Accessible luxury is generally defined as items priced between $1,000 and $3,000.

Finally, management sees an opportunity to further grow the services business from $500 million to $1.2 billion, and expects additional sales from digital channels of $450 million.

Finally, the company updated its adjusted long-term operating margin guidance to 11% to 12% and its earnings per share (EPS) range to $14 to $16 (which includes share repurchases). do not have). That’s up from $11.80 on his EPS last year.

are you buying?

Throughout the Investor Day conference, management argued that the stock was undervalued. The stock has a price-to-earnings ratio (P/E) of less than 7, so it’s hard to disagree with that assessment.

Wall Street is still skeptical that the company will be able to achieve steady growth, but Signet competes in a highly fragmented market and has advantages such as scale and technology, and is expected to continue under new management. has already captured a large market share.

If the company can deliver on the targets outlined at the meeting, the stock should have more room to deliver. Additionally, its current price limits downside risk.

2023 may prove to be a difficult year, but a rebound in the engagement business should make equities the winners in the years to come.

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