Shares of Signet Jewelers (NYSE:SIG) were down on Wednesday after a pessimistic note from a Wall Street analyst following the company's disappointing earnings report on Tuesday.
As of 12:30 p.m. EDT, Signet's shares were down about 9.7% from Tuesday's closing price.
Signet reported earnings yesterday, and they weren't great. While its adjusted loss of $1.59 per share was narrower than Wall Street had expected, its revenue in the quarter ending May 2 fell short of analysts' forecasts. Worse, the company said that it will permanently close 380 of its roughly 3,200 stores in the U.S. and U.K., reducing its store footprint by about 20% as part of a larger restructuring plan.
That's not playing well on Wall Street. In a new note on Wednesday morning, Citigroup analyst Paul Lejuez said that while Signet is dealing with the COVID-19-induced recession as well as can be expected, it's not a good situation.
Lejuez noted that the closures will shrink Signet's store base, while traffic to its remaining stores remains "a big question mark" for the 2020 holiday season and beyond. In addition, he wrote, tightening subprime lending standards could have an additional negative impact on the mass-market jeweler's sales.
Long story short, Lejuez said, Signet's earnings power is "a fraction of what it once was." He reiterated his sell rating on Signet's shares and his previous $5 price target.
The good news for consumer-discretionary investors, such as it is, is that Signet still has plenty of cash on hand, about $1.07 billion as of May 2, after drawing down its line of credit last quarter. The company isn't in immediate danger.
The less good news is that it's hard to argue with Lejuez's key point: With fewer stores, an uncertain economy, and tougher borrowing standards, Signet's earnings power is almost certainly diminished. Trade carefully.