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Signet to Acquire Blue Nile, Lowers Fiscal 2023 Projections

Story Highlights

Signet seeks to expand its diamond bridal jewelry collections with the acquisition of Blue Nile. However, the $3-billion company has lowered 2022 projections due to lower consumer spending and macroeconomic headwinds.

Diamond jewelry retailer Signet Jewelers Limited (NYSE: SIG) has agreed to acquire Blue Nile, Inc., a popular online retailer of fine jewelry and engagement rings, for $360 million in cash. In addition to this buyout deal, the $3-billion company revised its projections for Fiscal 2023 on August 9, 2022.

Following the announcements, shares of Signet declined 11.7% on August 9, 2022. However, the stock regained momentum, rising 7.9% to close at $64.56, on August 10.

Number of Stores and Key Brands Owned by Signet

Based in Hamilton, Bermuda, the leading online retailer of diamond jewelry operates 2,800 stores in the United States, Canada, the U.K, and others. Its leading store brand includes Zales, JamesAllen.com, Diamonds Direct, Kay Jewelers, and Jared.

The Rationale behind Blue Nile’s Acquisition

The acquisition of Blue Nile, which is popular for its range of wedding rings, fine jewelry, and engagement rings, is anticipated to strengthen Signet’s footholds in the bridal jewelry market. Also, it will boost the company’s Accessible Luxury portfolio, which already includes Diamonds Direct, Jared, and James Allen.

Also, Blue Nile’s online tools, its zeal to enhance customers’ shopping experience, and its revenue generation capabilities (>$500 million in 2021) are expected to benefit Signet.

The CEO of Signet, Virginia C. Drosos, said, “Adding Blue Nile to our strong and diversified portfolio of banners will further drive our Inspiring Brilliance growth strategy – expanding customer choice, building new capabilities, and achieving meaningful operating synergies that will increase value for both our consumers and shareholders.”

Signet anticipates the acquisition, which is expected to conclude in the third quarter of Fiscal 2023 (ended July 2022), to yield synergies from the fourth quarter of Fiscal 2023 (ending October 2022).

Projections for Q2 and Fiscal 2023

Citing macroeconomic headwinds and lower consumer spending, Signet lowered its projections for Fiscal 2023 (ending January 2023). The company now forecasts revenues to be within the $7.6-$7.7 billion range versus the $8.03-$8.25 billion stated earlier.

Operating income in the year is expected to be $787-$828 million, down from $921-$974 million stated previously.

For the second quarter, the company forecast revenues of $1.75 billion, down from $1.79-$1.82 billion anticipated earlier. The projection is also lower than the first-quarter tally of $1.84 billion.

The Website Traffic tool of TipRanks hints at Signet’s dismal top-line performance in the second quarter. The total estimated visits to the company’s website decreased 24.9% sequentially in the second quarter of Fiscal 2023.

Operating income is forecast to be $192 million in the quarter versus $188-$204 million provided earlier.

The company’s CEO said, “We saw sales soften in July as our customers have been increasingly impacted by rapid inflation, so we’re revising guidance to align with these trends. That said, I’m pleased that revised guidance positions us up ~25% in revenue versus the FY20 pre-pandemic period.”

Is Signet a Good Stock to Buy Now?

For now, a wait-and-watch approach could be a good idea for investors looking to gain exposure to SIG stock.

Signet’s efforts to expand its market share through organic means and acquisitions, its transformed operating model, and a healthy balance sheet are appreciable. Also, the impact of inflation and macro headwinds on consumer spending is visible.

On TipRanks, the company has a Moderate Buy consensus rating, which is based on three Holds and two Buys. SIG’s average price forecast is $79.20, suggesting 22.68% upside potential from the current level.

On August 10, 2022, Paul Lejuez of Citigroup maintained a Hold rating on SIG while lowering the price target to $65 (0.68% upside potential) from $76. Lejuez said, “While we believe the market was braced for the guidance cut, the acquisition was a surprise.”

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