Signet Jewelers has picked up online jewelry platform Blue Nile in a $360 million all-cash deal, an arrangement that will help expand the company’s bridal category while appealing to younger luxury shoppers.
The acquisition will also help Signet — which counts Kay Jewelers, Zales, Jared, H. Samuel, Ernest Jones, Peoples Jewellers, Piercing Pagoda and JamesAllen.com in its portfolio of brands — strengthen its digital presence.
“Blue Nile is a pioneer and innovator in online engagement rings and fine jewelry, providing a unique and highly desirable shopping experience for customers,” said Virginia C. Drosos, Signet’s chief executive officer. “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.”
Sean Kell, CEO of Blue Nile, added: “By joining Signet, we will extend our premium brand and fine jewelry offering to millions of new customers while bringing new capabilities to our leading e-commerce business that will drive additional growth opportunities for Blue Nile. We’re equally thrilled to join a purpose-inspired and sustainability-focused company that shares our core values and has been recognized as a certified great place to work.”
Blue Nile, which had annual revenues of $500 million last year, sells engagement rings and other fine jewelry online.
The deal is expected to close in the third quarter of Signet’s fiscal-year 2023. But the company said it will likely not be accretive to the business until the fourth quarter of fiscal 2024.
Broader scale, the acquisition is the latest in a string of retail mergers and acquisitions — and an M&A market that some investors say will likely heat up in the back half of 2022 and beyond.
Meanwhile, Signet also updated its quarter and full-year guidance on Tuesday. Although the retailer is benefiting from the return to weddings and surge in engagements, it said it is also experiencing decreased consumer spending, caused by inflation, as well as continued supply chain disruptions.
The company now expects current quarter revenues to be roughly $1.75 billion, with full-year revenues between $7.6 billion and $7.7 billion, down from its previous estimates of between $8.03 billion and $8.25 billion.
“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,” said Drosos. “That said, I’m pleased that revised guidance positions us up [approximately] 25 percent in revenue versus the [fiscal-year] 2020 pre-pandemic period. In addition, our transformed operating model and strong balance sheet give us dry powder, even in a down market, to invest in market share expansion as we are doing organically in our banners and with the acquisition of Blue Nile. We believe this acquisition brings additional value, capabilities and further growth potential to our company.”
Joan Hilson, Signet’s chief financial and strategy officer, added: “While our initial guidance for [fiscal-year] 2023 anticipated the impact of stimulus in the base period and the level of inflation that we were seeing at that time, we have seen a further deterioration in consumer spending, including at higher price points, in July. Assuming this trend will persist in the back half of the year, we are modestly reducing our [fiscal-year] 2023 guidance. Importantly, our outlook continues to reflect a double digit annual operating margin based on the strength of our transformed business model.”
But the executives’ statements didn’t tame investor fears. Shares of Signet closed down 11.7 percent to $59.75 apiece Tuesday.
“Investors are likely fearing the worst on the Blue Nile deal,” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “This comes after a tumultuous acquisition of Zale several years ago, as well as a James Allen acquisition that took more time to scale than originally thought.”
He added that “the comment that Signet expects Blue Nile to become accretive by the fourth quarter of next [fiscal year] appears to have spooked many investors. However, we remind everyone that the jewelry business is highly seasonal and this is not something that concerns us.”
His firm rated the stock “overweight” and set a price target of $100 a share.
“A few things to keep in mind: the size of this deal,” Boruchow wrote in the note, “$360 million, is small; the deal is all cash (no change to leverage); and it dovetails nicely with what the new team at Signet has been focusing on of late — increasing digital capabilities to take greater share in a category where competitors are not able to scale. (Mom-and-pop [and] independent [retailers] cannot compete digitally with Signet and management is capitalizing on this.)”
Shares of Signet are down approximately 12 percent, year-over-year.