The owner of Kay Jewelers and Zales slashed its outlook for the remainder of the fiscal year as shoppers rein in their spending on jewelry and other discretionary items.
Signet Jewelers Ltd. shares fell 11% at 8:08 a.m. New York time. If that decline holds until the market opens, it will be the biggest drop since Sept. 1.
The jewelry retailer had already been forecasting a slowdown in consumer spending as robust pandemic shopping patterns moderate and because of a temporary drop in the number of engagements, which the company attributes to the lack of dating during the depths of the Covid restrictions. But the drop in demand has been sharper than executives were anticipating.
Couples bought lower-priced engagement rings while shoppers at higher price points — who had previously been resilient in their spending — also cut back on their purchases, Signet Chief Executive Officer Gina Drosos said in an interview. Wealthier consumers who purchased jewelry that costs $5,000 and above, however, continued to spend.
“Luxury jewelry has been strong since we’ve come out of Covid and we’re seeing that trend continue now,” Drosos said. “What we’re also seeing is the macro-economic pressure on spending is moving up the household-income chain.”
Signet accurately forecast the number of engagement rings people would buy in the quarter but didn’t anticipate the negative impact on average transaction value, Drosos added. Wedding jewelry, including engagement items, generates about half of Signet’s sales. She reiterated that she expects engagements to accelerate starting around December of this year.
Shoppers who purchased items that cost between $1,000 to $5,000 slowed their spending toward the end of the prior quarter, she said, as they became more wary amid high inflation and interest rates as well as regional bank failures.
Despite the slashed outlook for the current fiscal year, Drosos said the company is sticking with the targets it announced for the next three to five years. “We remain very confident in our mid-term goals that we outlined in our April investor day,” she said. The company said it’s targeting additional cost savings of as much as $150 million. That includes around 150 store closures, Drosos added.
Signet, which is the largest jewelry company in the US, now expects sales in its fiscal 2024 to be between $7.10 billion to $7.30 billion. That’s down from the $7.67 billion to $7.84 billion it was forecasting in March and well below analysts’ estimates.
The owner of Jared and Blue Nile also slashed its outlook for diluted earnings per share. For the current quarter, the company’s forecast trails estimates, too.
Despite the downbeat outlook, Signet said in the statement that it expects to perform better than the overall jewelry market in the US and forecasts gains in market share.
Signet said recently that it aims to have 11% to 12% of the US jewelry market in the next five years. That would be an increase from the 9.7% is had as of April. Signet generates three times as much revenue from jewelry as its single biggest competitor in the US jewelry market, which is the mass-market retailer Walmart Inc.
(Updates with CEO comments.)