When Gina Drosos became CEO of Signet Jewelers (NYSE:SIG) in 2017, she was taking over a company with a tarnished reputation and reduced morale.

Earlier, a harsh spotlight had exposed Signet's good-old-boy corporate culture, resulting in a gender bias lawsuit with 70,000 female plaintiffs that continues to move forward today. Many senior-management-level employees faced discipline or loss of jobs, CEO Mark Light left, and the entire situation was seriously disruptive to business.

Drosos had her work cut out for her.

Polishing requires a lot of elbow grease

Signet Jewelers owns Zales, Kay Jewelers, Piercing Pagoda, Jared the Galleria of Jewelry, James Allen, and Peoples. In March 2018, Drosos introduced a three-year turnaround plan, called the Path to Brilliance, encompassing all divisions. The plan aims to position the company as a "share gaining, OmniChannel jewelry category leader while addressing cost structure."

On Dec. 6, Signet Jewelers reported better-than-expected third-quarter fiscal 2020 results. There were glimmers of hope that the Path to Brilliance turnaround plan is beginning to gain traction.

A man and woman in a jewelry store looking at a case of watches.

Image Source: Getty Images.

The company's adjusted loss was $0.76 per share, narrower than Wall Street's estimate of $1.08 per share. One year ago, the quarterly reported adjusted loss was $1.06.

But even more significantly, Signet notched its eighth straight quarterly sales beat. Third-quarter revenue came in at $1,187.7 million, surpassing the Wall Street consensus of $1,138 million.

Same-store sales increased 2.1% year over year. E-commerce sales grew 11.4% from the prior-year quarter, while same-store sales for brick-and-mortar locations grew 0.9%. E-commerce constituted 11.7% of total sales.

"We delivered positive same store sales and improved profitability year over year and ahead of our guidance as we continued to drive our Path to Brilliance transformation," said Drosos, referring to the company's ongoing restructuring initiatives. "As we approach the key selling weeks ahead, we are focused on successfully executing our customer-inspired holiday plans featuring new on-trend merchandise, enhanced eCommerce capabilities, and more relevant and targeted marketing campaigns."

For the full 2020 fiscal year, Signet forecasts adjusted earnings per share of $3.11 to $3.29. Prior to the earnings release, the Wall Street consensus estimate was $2.95 per share. Signet anticipates a full-year same-store sales decline of 1.7% to 1%, with total sales of $6.01 billion to $6.05 billion. The Wall Street consensus had called for total sales of $6.02 billion. 

Signet Jewelers plans to close 150 stores in fiscal 2020, of which 86 have already closed. As part of the Path to Brilliance plan, it will have reduced its store count by 12% between fiscal 2018 and fiscal 2020, driven in part by exiting lower-grade malls. Meanwhile, the company's cost-cutting plan is on track to deliver net cost savings of $200 million to $225 million between fiscal 2019 and fiscal 2021.

The sparkle of opportunity is growing stronger

The jewelry business has changed dramatically over the past decade due to internet and big-box competition, rapid technology changes influencing customization demand, and swirling economic conditions. Changing the course of one family-owned jewelry store is hard enough. Changing the course of a large multidivisional jewelry company coping with organizational turmoil is a much greater challenge.

Signet Jewelers' results finally reflect the success of the three-year turnaround plan. The company primarily serves the middle market, which increasingly shops online. So it's encouraging to see Signet's omnichannel strategy working, as it simultaneously exits lower-performing malls, thereby increasing efficiency, increasing sales, and lowering costs.

On Nov. 6, 2015, Signet stock traded at $150 per share. Today it trades for around $20 per share.

Under Drosos' leadership, Signet is beginning to recover from the gender bias discrimination damage. Her turnaround plan is showing great potential in the make-or-break quarter for jewelry stores. It isn't happening overnight, but it is happening. I consider this stock a buy.