Signet Jewelers Makes A Minor Acquisition With Major Implications For Jewelry Retailers

Despite revenues declining 8.1% in the second quarter and 12% on a same-store sales basis, Wall Street rewarded Signet Jewelers for a job well done in what everyone expected would be a tough period.

The day before the earnings release on August 31, shares were trading at about $71 and reached almost $80 at the close of September 1, only to settle back to around $75 this week.

Nonetheless, Signet exceeded analysts’ consensus estimates of $1.58 billion, according to Best Stocks. And it holds firm on the company’s year-end guidance of sales reaching between $7.1 to $7.3 billion and operating income in the range of $635 million to $675 million. However, it raised its EPS guidance to $9.55 to $10.14 as it expects to increase its market share in an otherwise down market.

Amidst the hubbub of Signet’s topline earnings report, it dropped an acquisition announcement that was easily overlooked but has big implications for the company’s long term performance and could be a game changer for the jewelry retail industry at large. But first, let’s discuss other performance news.

On a positive note, Signet did better in the North American market with sales down 7.1%. North America is where over 90% of its revenues come from. That decline is set against an overall 10.8% drop in jewelry sales through July, according to Tenoris. And the company noted it was tracking an improvement in fashion merchandise priced under $1,000 during the quarter.

As for the bridal jewelry category, on which about half of Signet’s revenues depend, it is expecting engagements to continue to decline through the end of the year following the disruption of dating behavior caused by Covid.

Some 2.1 million couples are expected to tie the knot in 2023, down from pre-pandemic levels of 2.8 million. However, Signet foresees recovery to start in 2024 and get back to normal levels by about 2026, with its wedding forecasts informed by proprietary data tracking 45 milestones along a couple’s dating journey that leads to an engagement.

“We predicted a challenging macro-environment, especially that engagements would be down this year. But we exceeded our expectations,” CEO Gina Drosos share with me after the earnings call.

“We remain focused on consumer insights to understand where the customers are so that we can meet them with the right products, the right education and the right marketing,” she added.

Acquisition News

As for the game-changing news, Signet acquired SJR National Retail, a full-service jewelry and watch repair company, for $6 million, a rounding error on the company’s balance sheet.

“Buying the competition has been Signet’s playbook for decades,” JCK’s Rob Bates shared with me, but this time, it acquired a partner, not a competitor, since it will open the door for Signet to provide business-to-business repair services to independent jewelers. 

SJR was founded in 2002 by an ownership team that worked for 40 years at Service Merchandise. It offers mail-in jewelry and watch repair, refurbishment, custom design and appraisal services to consumers, but it also has built a network of over 4,000 jewelry stores it supports.

SJR will be folded into Signet Services Repair, an enterprise-wide repair service that grew out of Signet’s Blue Nile acquisition and fulfillment center; however, SJR will continue operating out of its Brentwood, TN headquarters. The company will now employ 1,900 jewelers.

Services Upside

The company has been touting the potential of services and repairs as a $500 million opportunity, but now sees its ability to reach $1.2 billion because it can offer these services not just to Signet customers across its many brands, including Kay, Zales, Jared, James Allen, Diamonds Direct and Blue Nile, but to independent jewelers as well.

To put the jewelry services opportunity into perspective, its $1.2 billion potential exceeds the $1 billion opportunity Signet foresees in the accessible luxury jewelry category and the $600 million revenue opportunity in bridal jewelry as the engagement market recovers. And the company notes that there is a 20-point margin premium in services over merchandise sales.

“The SJR acquisition is not huge in the scheme of our company, but it is huge in the scheme of our ability to do business-to-business repairs,” Drosos said. “We can support the craft of jewelry and do repairs for independent jewelers and department stores that may not be able to do it themselves or have a jeweler on staff. It’s an example of the biggest company in the category helping support the entire industry and the jewelry craft.”

Obviously, providing repair services to customers furthers Signet’s sustainability initiatives and is good for fostering a deeper relationship with its customers.

“We don’t just want to sell you something, we want to create a great ownership experience. We want to create a lifetime relationship with the customer,” she said, noting that fine jewelry and watches need repairs and services just like an automobile or a major household appliance.

Growing The Jewelry Pie

But its potential for Signet to partner and support jewelry retailers more broadly is ultimately a way for it to help grow the “jewelry retail pie,” rather than cut the existing pie into smaller and smaller slices.

JCK’s Bates observed the “business-to-business aspect could prove tricky,” as independent jewelers may not think kindly to doing business with a major competitor. However, that Signet provides the repair services to an independent’s customers will be invisible. The consigning retailer will own the customer relationship and the independent jewelry will reap the rewards.

“What we find in our own business is that repair and jewelry service customers tend to come back more frequently and spend more with us. It’s good for the independents to have confidence in their jewelry service offerings,” said CFO Joan Hilson to JCK.

SJR already has a solid base of 4,000 B2B customers it reliably provides services to. If Signet keeps SJR the forward face of its B2B service offerings, as is Signet’s established practice when acquiring brands, it can give marketing muscle to attract new B2B customers.

The Census Bureau reports there are some 14,000 jewelry retailers in the country with fewer than 20 employees. This is the total addressable market for Signet’s B2B service business.

And the retail industry is expected to need 7% more trained jewelers between 2021 and 2031, but the number of people attracted to the trade is limited, according to the Bureau of Labor Statistics.

Services Complete The Loop

Services have been a huge money maker for Signet, noting in the earnings call that “Services represent nearly half of the growth in our core banners over the last four years,” which also includes piercings and jewelry rental.

And while Signet’s overall sales declined in the quarter, its services revenues advanced 4%.

That makes Signet’s acquisition of SJR a major move for the company and its potential for the jewelry retail industry overall.