Will These Jewelry Retailers Have a Sparkling Holiday Season?

With the improvements in the U.S. economy and the job market, consumers are beginning to buy more discretionary items, such as jewelry. Jewelry retailers such as Tiffany (NYSE: TIF  ) , Signet Jewelers (NYSE: SIG  ) , and Pandora A/S (NASDAQOTH: PNDZY  ) reported solid results in their recent quarterly reports, and are expecting strong results overall for 2013.

Research firm ShopperTrak recently released a forecast stating that holiday sales are expected to rise less this year than they have in prior periods. The firm believes consumers are still cautious about spending due to the slow economic recovery. November and December sales are estimated to rise by 2.4% compared to increases of 3% in 2012, 4% in 2011, and 3.8% in 2010.

A recent poll conducted for Reuters found that one-third of consumers plan to spend less this year on electronics, toys, and jewelry. Do these retailers predict that the critical holiday shopping season will support their positive outlooks for the end of the year?

Signet expands its presence in outlet malls
Signet Jewelers sells its jewelry merchandise in the U.S. and the U.K. markets through its specialty retailers Kay Jewelers, Jared, Ernest Jones, and H. Samuel.

The company's second-quarter results for fiscal 2014 ended Aug. 3, 2013 were negatively affected by Signet's acquisition of Ultra Stores, a jeweler with a strong presence in U.S. outlet malls. The acquisition is not expected to be accretive to earnings until the fourth quarter, and it decreased second quarter earnings per share by $0.06 per share to $0.84.

Gross margin also dropped to $309.7 million, or 35.2% of sales, compared to $311.2 million, or 36.4% in the same period last year. With key integration plans completed, the transaction is estimated to dilute third quarter earnings by no more than $0.02 per share.

Signet's second quarter same-store sales rose 3.6% overall, with a 4.9% increase in the U.S. led by higher sales at Kay (5.8%) and Jared (5.5%). With Mother's Day sales this year falling under the first quarter, second-quarter earnings appeared weaker in comparison to prior periods. Signet expects to meet its operating objectives for fiscal 2014 through its well-trained sales force, new product selections, and strong e-commerce sales.

Tiffany seeks to maintain high-end appeal
While Kay Jewelers expands its presence in outlet malls, Tiffany is focused on providing its customers with higher-priced, lower-margin items. During the second quarter ended July 31, Tiffany's net earnings increased 16% to $107 million, or $0.83 per diluted share. Net income in the prior period was $92 million, or $0.72 per diluted share. Tiffany's gross margin rose to 57.5% in the second quarter, up 1.2% from the same period last year. Gross margin improved due to decreasing cost pressures and price increases implemented earlier this year.

CEO Michael J. Kowalski commented about the company's solid sales performance in most regions. The Americas region had the lowest gain in sales for the quarter at 2% and the Asia Pacific market had the highest at 20%. Same-stores sales for the first half of the year grew in all markets -- the Americas (1%), Asia-Pacific (11%), Japan (14%), and Europe (6%). For the end of fiscal 2013, Tiffany expects diluted EPS of $3.50 to $3.60, a revision from the previous outlook of $3.43 to $3.53. Ref.

Pandora releasing new products more often
Danish jeweler Pandora A/S has been on a roller coaster ride since it went public in 2010. The company's shares have had an impressive run this year -- the stock is up 79% since January. According to Bloomberg, the company is now adding new collections seven times a year, up from twice in 2012. Pandora has also lowered its prices and is opening more stores. Pandora charm collectors are a large and loyal group; the company has 1.8 million followers on Facebook, and its loyalty program has about 4 million members.

The success of its new products has helped to drive revenue higher -- earnings before interest, taxes, depreciation, and amortization increased 140% in the second quarter. New products like a Mother's Day bracelet and a Sydney Opera House charm helped Pandora's sales rise by 47% in the first half of 2013.

Second-quarter revenue was up in all regional markets by 53.3%. Pandora's concept stores contributed close to 50% of revenue during the second quarter, and 175 new locations are opening in 2013 .

My Foolish conclusion
The jewelry retailers discussed above are confident in their ability to meet year-end objectives. Tiffany upped its overall EPS guidance for 2013 and is adding new stores, a sign that its more affluent consumers are less affected by the slow economic recovery.

Pandora's increasing number of concept stores in 2013 speaks to its loyal customer base that may show a willingness to buy as the holiday season gets closer. It's unclear whether or not Signet's expansion into outlet malls will benefit the company during this holiday season, as more cost-conscious consumers may hold back on their holiday spending.

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