UPDATE 3-Signet Jewelers beats Street; high-end sales soar

Thu Aug 26, 2010 11:37am EDT

* Q2 EPS 47 cents vs Street view 41 cents

* Q2 same-store sales up 4.5 percent; up 5.9 pct in U.S.

* Signet shares rise 3.2 percent; Tiffany up, Zale down (Adds details from conference call, byline; updates share activity)

By Phil Wahba

NEW YORK, Aug 26 (Reuters) - Signet Jewelers Ltd (SIG.N) (SIG.L) beat Wall Street earnings forecasts on strong sales at its upscale Jared chain and higher selling prices, sending its shares up 3.2 percent.

Signet, which operates chains including Kay Jewelers in the United States and H. Samuel in Britain, had particularly strong sales growth in the United States, where sales at stores open at least a year, or same-store sales, rose 5.9 percent. Its U.S. division accounts for more than 80 percent of total sales.

U.S. same-store sales were led by a 14 percent increase at the Jared chain.

But Chief Executive Terry Burman said the outlook for the rest of the fiscal year remains uncertain, given the state of the U.S. and British economies.

Signet, which said in June it had a 9.1 percent share of the U.S. specialty jewelry market in 2009, said it has won business away from weakened U.S. rivals that survived a wave of industry bankruptcies in 2008.

Vendors have grown more willing to give Signet first crack at their best merchandise because of its cash position relative to struggling rivals, Burman said on a conference call.

Signet reported net income of $40.7 million, or 47 cents per share, for the second quarter ended July 31, up 47.5 percent from $27.6 million, or 32 cents per share, a year earlier. Sales rose 1.6 percent to $722.8 million.

Analysts on average were expecting 41 cents per share on sales of $725.5 million, according to Thomson Reuters I/B/E/S.

Companywide same-store sales rose 4.5 percent. Same-store sales slid 0.5 percent in Britain but rose 2.6 percent at Kay.

In the United States, Signet competes with Zale Corp ZLC.N in the so-called "middle" jewelry market that falls between discounters like Wal-Mart Stores Inc (WMT.N) and high-end jeweler Tiffany & Co (TIF.N).

Zale, which operates the Zales chain, has been grappling with sales declines, cuts in advertising and liquidity problems. In May it got a cash injection from a new investor.

Signet shares were up 88 cents to $28.30 in morning trading. Tiffany shares were up 1.5 percent, while Zale was down 3 percent. Tiffany is due to report quarterly earnings on Friday, and Zale is due next week.

BIG SPENDERS RETURN

Signet said the performance of the Jared chain -- which accounts for a quarter of the company's sales -- reflected a recovery in spending among wealthier U.S. households. The average item at Jared sells for twice as much as the average item at Kay.

Signet got a boost from higher selling prices and lower diamond costs, which make up more than half of the company's cost of goods sold. Those factors offset higher gold prices and the British pound's decline against the U.S. dollar. Gross margins were up 2 percentage points to 33.2 percent.

To increase market share, Signet said it would ramp up television advertising and line up more exclusive jewelry. For example, it is testing a line of pricier diamond rings by celebrity designer Neil Lane. [ID:nN02109564]

Signet operates 1,345 U.S. stores and 548 stores in Britain. Burman said the company would be willing to open more U.S. stores but said there were few suitable spaces available, given the slowdown in new commercial developments.

Burman, who is retiring in January, said the search for his successor was progressing but declined to give details. (Reporting by Phil Wahba; editing by John Wallace, Dave Zimmerman)