Stocks of a jewelry retailer Ring jewelry (NYSE: Sage) It was down 26.2% this week through Friday at 3 p.m. ET, according to data from Standard & Poor’s Global Market Intelligence.
Signet previously announced holiday sales on Tuesday, which turned out to be somewhat disappointing. Thus, it’s not surprising to see the stock falling on the news, even though it looks pretty cheap – at least on the surface.
On Tuesday, Signet announced a 2% holiday drop Same store saleswhich includes the days leading up to Christmas. That was lower than the company’s previous expectations, meaning Signet is likely to disappoint when it reports full fourth-quarter numbers.
Management now expects same-store sales to decline by between 2% and 2.5% during this quarter, whereas it previously expected same-store sales to reach 3%. Fourth-quarter revenue should now be between $2.320 billion and $2.335 billion, below previous guidance of $2.38 billion to $2.46 billion.
Although the engagement and service portion of the business was within expectations, the unrelated gifting and self-purchase categories were below expectations, the company said. “Consumers were attracted to even lower price points than expected in an ongoing competitive environment,” Joan Helson, chief financial and operating officer, noted in the release.
Like many other retailers, Signet is feeling pressure from consumers looking for deals and promotions. Food and housing price inflation in the past few years, coupled with the desire to spend on experiences post-pandemic, have weighed on sales of discretionary goods, such as jewelry.
At first glance, Signet looks like an amazingly cheap stock right now, at just 6.6 times excess profits. However, there are some factors to consider regarding its future, some of which could lead to Signet being a value trap.
Even more significant is the advent of lab-grown diamonds, a new innovation that is disrupting the more expensive “natural” mined diamonds. Lab-grown diamonds do not have the environmental footprint or political controversy inherent in traditional diamonds, and they are much cheaper, typically 60% to 85% less.
Clearly, Signet can focus on selling lab-grown diamonds in its retail brands and online stores. However, the emergence of lab-grown diamonds could impact revenues and profits for some time. On the bright side, Signet doesn’t have a lot of debt, so it can probably adapt. However, the process is likely to be messy, as we saw this week.
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