Signet Jewelers Ltd., the jewelry retailer giant that owns renowned brands such as Kay Jewelers, Zales, Jared, and Blue Nile, saw its shares surge on Thursday following the company’s announcement of a revised full-year profit outlook. The upward revision is underpinned by optimistic projections of an uptick in the number of couples getting engaged in the forthcoming months, a significant turn of events for Signet given that bridal sales have historically accounted for nearly half of the company’s merchandise sales.

Despite an 8.1% drop in quarter sales to July 29 compared to the previous year – marking the third consecutive quarter of decline – Signet remains hopeful about a recovery. The company attributes the sales slump to COVID-induced disruptions to dating, which have significantly reduced the number of engagements over the past three years. However, CEO Gina Drosos exudes confidence in a "multiyear recovery" beginning later this year, citing 45 "proprietary milestones" that the company uses to track a couple’s journey from meeting to engagement. These milestones, according to Drosos, provide a statistically significant likelihood of a couple moving towards engagement once they reach between 25 to 30 of these markers.

Signet Jewelers’ Stock Rallies Amidst Optimistic Profit Outlook

Shares of Signet Jewelers Ltd., the parent company of notable brands including Kay Jewelers, Zales, Jared, and Blue Nile, witnessed a significant boost on Thursday. The surge came as the jewelry retailer hiked its full-year profit expectations, drawing from indicators that suggest a rise in the number of couples getting engaged in the upcoming months.

A Positive Shift in Market Sentiment

Signet’s stock rose by 5.0% to $75.00, marking a 10.2% increase amidst a four-day winning streak. Despite recording a sales decline of 8.1% for the quarter ending July 29, the company’s announcement brought about a positive shift in market sentiment. This decline marks the third consecutive quarterly drop, attributed to Covid-related disruptions to dating that began three years ago, leading to significantly fewer engagements. This trend is a crucial factor for Signet, as bridal sales typically account for nearly half of all merchandise sales for the company.

Anticipating a Multiyear Recovery

CEO Gina Drosos, during the post-earnings conference call, expressed her confidence in a multiyear recovery in engagements starting later this year. Her optimism is rooted in 45 proprietary milestones that the company monitors to trace a couple’s journey through four significant relationship stages. These stages include meeting, exclusivity, commitment, and engagement. Drosos believes that once a couple reaches 25 to 30 of these milestones, they are statistically significantly more likely to move towards engagement.

Tracking Relationship Milestones

Examples of these milestones include attending a sporting event or concert together in the early stages of a relationship and traveling together later on. Moving in together is another strong predictor of engagement, according to Signet. The company believes that the combination of multiple triggers, rather than a single one, predicts a strengthening of a relationship.

Expecting an Increase in Engagements

During the fiscal second quarter, the number of couples approaching the 25 to 30 milestones increased by 7 percentage points from a year ago. With this in mind, the company has raised its fiscal 2024 guidance range for earnings per share to $9.55-$10.14 from $9.49-$10.09. The company maintained its full-year total sales outlook at $7.10 billion-$7.30 billion.

Financial Performance for the Quarter

For the quarter ending July 29, Signet reported a net income of $66.5 million, down from $136.8 million in the same period a year ago. Excluding nonrecurring items, such as charges related to the integration of Blue Nile, adjusted earnings per share of $1.55 beat the FactSet consensus of $1.45. Sales declined 8.1% to $1.62 billion, surpassing the FactSet consensus of $1.58 billion.

Takeaways

Signet’s optimistic outlook and the subsequent rally of its shares indicate that the company is banking on societal behavior and relationship trends to drive its future growth. Despite the impact of Covid-19 on their sales and the broader retail sector, Signet’s strategic tracking of relationship milestones provides a unique way to gauge market potential. This innovative approach, coupled with their recently increased earnings guidance, paints a promising picture for the company’s future performance.