What happened
Shares of Signet Jewelers (SIG 1.38%) fell 12% on Thursday after the diamond retailer warned investors that inflation was driving some consumers to pare back their spending on jewelry.
So what
The owner of brands like Zales, Jared, and Kay Jewelers saw its sales decrease by 1.9% year over year to $1.8 billion in its fiscal 2023 second quarter, which ended on July 30. Signet's same-store sales sank 8.2%. This decline was only partially offset by Signet's acquisition of jewelry chain Diamonds Direct in November.
During an interview with Bloomberg, CEO Gina Drosos said higher energy and housing costs drove lower-income shoppers to spend less on jewelry. In turn, Signet's sales of items priced under $500 fell sharply compared to the earlier stages of the pandemic, when stimulus checks helped to bolster consumer spending.
Moreover, Signet's gross margin decreased by 2.2 percentage points to 37.9%, due in part to the lower relative profitability of Diamonds Direct's bridal business. This, combined with Signet's sales shortfall, led its adjusted operating profit to fall 13% to $193.2 million. Its adjusted earnings per share, in turn, fell 25% to $2.68.
Now what
Still, Signet has performed relatively well during the pandemic. Its sales are up 29% compared to the second quarter of fiscal 2020, driven partly by a boom in wedding-related revenue.
The jewelry leader's financial strength has allowed it to scoop up smaller rivals in recent years. In addition to Diamonds Direct, Signet struck a deal to acquire online retailer Blue Nile in August.
"Signet's focus on gaining market share, driving further operating efficiencies, and building capabilities that are true competitive advantages, is putting us in a position to deliver long-term growth and increase shareholder value," Drosos said.
