At a glance, the case against diamond jewelry retailer Signet Jewelers (NYSE:SIG) appears cut and dry. In its latest earnings report, the company reported mixed results and disappointing forward guidance. Amid a tough backdrop for the economy, it’s no wonder that Signet shares fell following the disclosure. Nevertheless, the consumer market’s experiential surge represents an underappreciated upside catalyst. I am bullish on SIG stock for its potential ability to surprise the bears.

Investors Predictably Exit SIG Stock Following Disappointing Guidance

Although online investors may have a discounted opportunity in SIG stock, it’s also understandable why so many rushed for the exits. Frankly, the results for the fourth quarter of Fiscal 2024 weren’t all that great.

In terms of the bottom line, Signet posted earnings per share of $6.73. This print handily beats the consensus EPS target of $6.37. However, the top line landed at only $2.49 billion, missing the consensus target of $2.55 billion and coming short of last year’s sales of $2.67 billion. Not only that, but same-store sales slipped 9.6%, reflecting rising consumer problems.

Granted, circumstances in the broader economy aren’t exactly rosy for other discretionary-retail-related enterprises. So, if it was just a miss on the top line, investors might have given SIG stock a pass. Unfortunately, management also offered modest guidance that failed to meet anticipated targets.

For Fiscal year 2025, Signet now believes that revenue will land between $6.66 billion and $7.02 billion. However, analysts were modeling sales of $7.17 billion. As well, the company’s leadership team projects same-store sales to land between 4.5% down and 0.5% up. These metrics disappointed market observers, sending SIG stock southbound. Last week, Signet stock fell by 9%.

Still, CEO Virginia Drosos puts a positive spin on the numbers. “We drove gross margin expansion of 160 basis points and sustained average transaction value this quarter by executing on our strategy of building brand equity, customer experience innovation, and accelerated sell through on product newness as offsets to heavy discounting by competitors.”

During Q4, Drosos cited a challenging environment for the industry. However, management believes that a few distinguishing elements – particularly marketing personalization and aggressive expansion of the company’s service business – could help lift SIG stock.

It’s a plausible directive, given the push for experiential-based purchases.

A Fresh Impetus and a Growing Market Bolsters Signet Jewelers

Following the COVID-19 crisis, consumer spending habits changed. In particular, many people have focused on what’s known as experiential purchases. Rather than physical goods, consumers attend concerts and travel to exotic locations. With a heavy lesson imposed that life is short, many have chosen to live to the fullest.

Fundamentally, this ethos should be carried over into the holistic wedding market, of which purchasing engagement rings and related jewelry represents core elements. Because of the emphasis on experiences, there may be more pressure to achieve perfection, that is, finding the perfect wedding location, the perfect ambiance, and, of course, the perfect ring. This dynamic should help SIG stock.

Further, there’s no evidence to suggest that the wedding industry is fading. For example, Research and Markets points out that last year, the US wedding management sector reached a valuation of $7.03 billion. By 2029, this ecosystem should be worth $7.69 billion.

To be fair, this expansion represents a compound annual growth rate of only 1.5%. In and of itself, that’s nothing to write home about. However, the growth demonstrates the reliability of the wedding industry. No matter the economy, people are continuing to fall in love and commit to matrimony. That’s a positive framework for SIG stock.

Of course, moving forward, Signet must distinguish itself from the competition. That’s where management’s statements about personalization and services could play a significant role. Because the company leverages brands such as Kay Jewelers, Jared The Galleria Of Jewelry, and Zales Jewelers, it enjoys the advantage of broader awareness.

By watching television and social media advertisements, consumers have already been exposed to Signet’s messaging for years. So, when it’s time for them to get on one knee, that awareness can translate to an initial store visit. From there, Signet’s stated difference makers in personalization and service could seal the deal.

Sell-Off Translates to Great Value

At the moment, SIG stock trades at a trailing-year earnings multiple of 6.5x and a forward multiple near 10x. In contrast, the specialty retail sector’s average trailing-year earnings multiple clocks in at 18.2x. So, on paper, Signet is undervalued.

Of course, it’s much more than just this metric. If no one wanted to buy Signet’s products, then this cheap multiple would really be a value trap. It would only look discounted on an arithmetic basis. However, expert projects call for slow and steady growth in weddings. Further, with Signet’s brand awareness advantage, the company arguably has a better chance than most of converting store visits to sales.

Is SIG Stock a Buy, According to Analysts?

Turning to Wall Street, SIG stock has a Moderate Buy consensus rating based on two Buys, two Holds, and zero Sell ratings. The average SIG stock price target is $117.25, implying 28.7% upside potential.

The Takeaway

Although Signet Jewelers’ disappointed forward guidance scared away investors, that’s not the only story to focus on. Rather, consumers these days value experiences, a direct consequence of the COVID-19 crisis. This dynamic should help SIG stock, as the underlying product represents key elements of the wedding experience, one of the most important in a person’s life. Therefore, market participants should consider Signet’s sell-off as a discount, not a warning.


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