Signet Jewelers (NYSE: SIG) isn't a household name among investors or even shoppers, but you likely know some of its brands.
The company is the world's largest diamond jewelry retailer and owns banners like Kay, Zales, Jared, and Blue Nile, among others. While the jewelry market has been volatile in recent years, swinging back and forth amid pandemic highs and lows, the stock has been a winner over the last five years, up more than 400% during that time.
As you can see from the chart below, the stock soared in 2021, benefiting from a burst in consumer spending with the help of stimulus checks, and it has held on to those gains over the last three years even through the 2022 bear market and challenges from inflation and weak consumer spending.
Those gains are a result of the company's Inspiring Brilliance strategy, expanding the accessible luxury category, investing in its biggest banners, growing its high-margin services businesses, and scaling its digital commerce capabilities to build out loyalty programs and leverage other advantages.
Signet got another round of applause after the company's second-quarter earnings report. Let's take a closer look at the company's prospects after the recent update.
Image source: Getty Images.
Fashion steals the show
Investors liked what they saw in the second-quarter results as the stock jumped 11% on the news.
Signet reported another decline in revenue and profits in its fiscal 2025's second quarter, ended Aug. 3, as consumer spending has been weak and engagements have been delayed as a result of the pandemic. However, the company said that comparable sales turned positive in the third quarter to date, and unit sales from engagements have turned positive. Meanwhile, the fashion segment, defined as the non-bridal part of the business, has outperformed expectations.
Same-store sales were positive in fashion in July, August, and September to date as Signet's new product assortment has resonated with customers. Revenue from new merchandise jumped 50%, lifting sales at its core banners by 8 percentage points. Those new products include innovation with sculpted gold, allowing for chunky looks at affordable price points, and lab-created diamonds have also been a source of strength for the company in the fashion category.
Lab-created diamonds (LCDs) allow customers to get a larger diamond at a lower cost, and CFO Joan Hilson noted in an interview that LCDs helped drive average transaction value up 1.6% and LCDs in fashion was up 25% in the quarter.
Hilson said that carrying lab-created diamond products in fashion has helped round out its offerings for customers, adding, "We see lab-created in fashion as a real growth opportunity and a way to grow the fashion jewelry market."
Is Signet a buy?
Signet operates in a mature industry, but the company has a history of gaining market share, and is focused on expanding its operating margin by rationalizing its store base and closing underperforming locations, investing in higher-margin businesses like services, and streamlining through cost cuts as the company is targeting $200 million in cost savings this year.
Investors who have patiently held the stock for the past two years could start to reap the rewards based on its strength in fashion, the recovery in bridal as engagements return to positive growth, and the company's commitment to returning capital to shareholders through dividends and share repurchases.
Signet repurchased 441,000 shares in the second quarter, reducing shares outstanding by 1%, and earlier this year, the company bought back 4.1 million shares, or 7.6% of its share count at the time, as part of an agreement with Leonard Green & Partners, a private equity investor in Signet.
Even after the stock's pop on Thursday, Signet is still cheap at a forward P/E of just 8. The company looks poised to return to growth in the second half of the year, and earnings-per-share growth should follow, benefiting from investments in higher-margin initiatives and share buybacks.
While another 400% gain from the stock seems unlikely, Signet looks poised to outperform the market based on its growth tailwinds and its cheap valuation.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
