Shares of Signet Jewelers Ltd. jumped 7.7 percent Thursday after the jewelry retailer increased its projections for synergies in the aftermath of its acquisition of Zale Corp.
Signet, which acquired Dallas-based Zale on May 30 for total consideration of about $1.46 billion, originally set a target of $100 million in synergies in the first three calendar years following the deal, beginning in 2015. On Thursday, after reporting sales and earnings that both exceeded Wall Street consensus estimates, the company lifted the figure to between $150 million and $175 million.
Michele Santana, chief financial officer, said that initially Signet expected $50 million in three-year savings from “margin sourcing opportunities,” about $30 million from “cross-selling and repair service opportunities” and $20 million from savings on selling, general and administrative expense efficiencies. The additional synergistic effect is expected to be spread fairly proportionately among those areas.
The firm, based in Hamilton, Bermuda, is actively exploring cross-selling possibilities. The Vera Wang jewelry collection, previously exclusive to Zales, will be tested in 50 Kay stores this fall, while numerous Kay brands, such as Open Hearts by Jane Seymour, will be tested at the Peoples nameplate in Canada, previously part of Zale.
Michael Barnes, chief executive officer, pointed to savings available as Signet explores consolidating marketing expenditures of the two onetime rivals. “And by combining our investments, we’re seeing a net improvement in pricing for the entire company,” he told analysts on a Thursday morning conference call.
Teams are also putting together a strategy to expand outlet operations, including a test of about a half-dozen Ernest Jones outlets in the U.K. commencing in the fall.
The gain in the stock, the most robust among the North American retailers tracked by WWD, lifted Signet shares to $116.37. They established a 52-week high of $117.42 in midday trading.
In the three months ended Aug. 2, Signet’s net income dropped 14 percent to $58 million, or 72 cents a diluted share, from $67.4 million, or 84 cents, in the 2013 period. Eliminating costs and charges as well as some benefits associated with the Zale acquisition, earnings per share came to $1, which was 2 cents above the consensus estimate for EPS of 98 cents.
Sales grew 39.3 percent to $1.23 billion from $880.2 million in the prior-year quarter, above the $1.19 billion expected, on average, by analysts. Eliminating the $247.5 million in sales contributed by Zale operations during 65 days of Signet ownership during the quarter, organic sales were $978.4 million, 11.2 percent above their performance in the 2013 period.
While the addition of Zale helped the top line, it depressed both same-store sales and margins. Comparable sales at the Sterling group, including Kay and Jared, rose 6.7 percent and those of the U.K. division were up 4.4 percent, but the former Zale nameplates, including Zales and Gordon’s, saw comps decline 0.9 percent. Comps in total rose 4.8 percent, a figure that was lifted to 6.3 percent when former Zale operations weren’t included in tabulations. Gross margin fell to 33.4 percent of sales from 35.2 percent. Without the Zale margin results, which historically had trended lower than Signet’s, gross margin would have been 34.8 percent.
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