What happened

Signet Jewelers (SIG 4.86%), which owns brands like Kay and Jared, was losing its shine today after the company cut its guidance for the year and announced the acquisition of Blue Nile.

The stock closed down 11.6% on the news.

So what

The guidance cut seemed like the main reason for the slide today, though the acquisition may be the bigger long-term news. 

Citing "pressure on consumers' discretionary spending and increased macroeconomic headwinds,"  the company reported preliminary second-quarter revenue of $1.75 billion, below its previous forecast of $1.79 billion to $1.82 billion. Adjusted operating income is expected to be approximately $192 million, within its guidance range but toward the lower end. 

For the full year, it now sees revenue of $7.6 billion to $7.7 billion, and adjusted operating income of $787 million to $828 million, down from an earlier forecast of $8.03 billion to $8.25 billion in revenue, and adjusted operating income of $921 million to $974 million. CEO Virginia Drosos said, "We saw sales soften in July as our customers have been increasingly impacted by rapid inflation, so we're revising guidance to align with these trends." The guidance does not reflect the pending Blue Nile acquisition.

Separately, the company said it would acquire Blue Nile, a pioneer in online jewelry with a focus on engagement rings and fine jewelry, for $360 million in an all-cash transaction. Blue Nile posted more than $500 million in revenue in 2021. Management said the acquisition would expand its bridal offering and grow its accessible luxury portfolio.

While the deal is expected to close in the third quarter of the current fiscal year (2023), management said it wouldn't be accretive to profits until the fourth quarter of fiscal 2024.

Now what

With the guidance cut, management now expects revenue to fall slightly this year from the $7.83 billion it turned in last year. Signet performed well during the pandemic as stimulus checks and social restrictions gave a boost to the jewelry sector, but the company is operating in a more difficult environment today.

Still, even after the guidance cut, it is trading at just 3.5 times its adjusted operating income forecast for the year, or a trailing price-to-earnings ratio of less than 5. With a valuation like that, Signet remains appealing as a value stock even with the macroeconomic headwinds.