How did Signet Jewelers lose its sparkle?

The once high-flying retailer behind Kay Jewelers and Zales has seen its shares drop 33.5 per cent to $62.60 so far this year, leaving it the worst-performing stock on the S&P 500 even as US stocks have pushed deeper into record territory.

Signet, like other retailers, reported a disappointing performance over the crucial holiday shopping period at the start of the year, citing under-performance in its Sterling division’s e-commerce business. That in turn prompted the Bermuda-based retailer in January to lower its fourth-quarter sales and earnings forecasts.

The company said it expected like-for-like sales to decline between 4.3 to 4.8 per cent in the fourth quarter, compared with its previous estimates for a decline of between 2 to 4 per cent. It also lowered the high end of its earnings estimates for both the fourth quarter and fiscal 2017. The results are due later this week.

Moreover, analysts have lowered their outlook for the current quarter citing the later timing of tax receipts. “Unfortunately, the late timing of receipts encompassed Valentine’s Day, which is a critical selling occasion for Signet (we estimate ~25% of 1Q sales),” said Lindsay Drucker Mann, an analyst at Goldman Sachs. “We believe Valentine’s Day is the second most important occasion for (Signet) during the year after Christmas.” Moreover, she said the company’s customer base, which skews towards lower- and middle-income households is likely to have been impacted by the timing delays.

But it isn’t just the company’s performance that has soured sentiment on the stock. Signet’s shares tumbled nearly 13 per cent on the last day of February — its biggest one-day drop in 8 years — after the Washington Post reported that former employees of Sterling Jewelers filed a private class-action arbitration case alleging discrimination, among other claims.

The company said that it had thoroughly probed the claims and “concluded they are not substantiated by the facts and certainly do not reflect our culture.”

That compounded woes for the retailer, which took a reputational hit last year amid allegations that customers bringing their jewellery to be serviced by the company had their diamonds replaced with stones of a lower quality. Signet at the time said it strongly objected to the reports its team members “systematically mishandle customers’ jewelry repairs or engage in ‘diamond swapping’” and added that “incidents of misconduct, which are exceedingly rare, are dealt with swiftly and appropriately”.

Those allegations along with criticism of the Signet’s credit portfolio — the company offers in-house credit — and declining sales in the second and third quarter helped pushed its stock down nearly 24 per cent last year.

Indeed, the company’s shares are off nearly 60 per cent from their all-time high of $152.27 struck in October 2015.

However, analysts on Wall Street continue to be sweet on the stock. Signet boasts zero “sell” ratings, 8 “hold” ratings and 10 “buy” ratings, according to Bloomberg data.

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