* Q2 EPS 32 cents vs. Street est. 23 cents
* Sales fall 7.6 pct
* Ups free cash flow target by $100 mln
* Shares up 13.9 percent
(Adds more comments, updates stock action)
By Aarthi Sivaraman
SEATTLE, Sept 9 Top jewelry retailer Signet
Jewelers Ltd (SIG.N) posted a higher-than-expected quarterly
profit on Wednesday as cost-cuts helped to offset weak demand,
and its shares surged over 14 percent.
As the critical holiday season approaches, UK-based Signet
said it stands to gain from the consolidation in the jewelry
sector as smaller rivals have shuttered stores in the economic
slump, while others like Finlay Enterprises Inc FNLYQ.OB have
filed for bankruptcy protection.
"We are taking advantage of reduction in sector capacity
taking place to gain market share," Chief Executive Terry
Burman said in a conference call.
Signet, which has shaved expenses to fight a sales slump,
said it is on track to save up to $100 million in costs at its
U.S. unit, which accounts for about 80 percent of its sales.
Signet earned $27.6 million, or 32 cents a share, in the
second quarter ended Aug. 1, compared with $19.7 million, or 23
cents a share, a year earlier.
Analysts on average had expected earnings of 23 cents a
share, according to Reuters Estimates.
Sales at Signet, with Kay Jewelers and Jared The Galleria
of Jewelry stores in the United States and Ernest Jones and H
Samuel in Britain, fell about 7.6 percent to $710.8 million.
Jewelers like Signet and Zale Corp ZLC.N and even upscale
chain Tiffany & Co (TIF.N) have faced weak sales as the
economic slump has forced shoppers to turn frugal. In turn,
retailers have cut costs to offset lower demand.
But in a possible sign that the decline might not worsen,
Tiffany pointed to slightly recovering demand for jewelry late
last month, though it noted that it does not expect any
material change in the economic environment. [ID:nBNG513912]
Signet took a similar stand, saying "the consumer
environment in both the U.S. and UK remains very uncertain" in
the short term. But it said it is prepared to face the
fast-approaching holiday sales season.
Signet's lower cost structure and the prospect of higher
free cash flow bodes well not just for the UK-based retailer,
said Dana Telsey, retail analyst at the Telsey Advisory Group.
"All in all, the jewelry industry is seeing signs of being
less negative," Telsey said.
Signet, the world's largest specialty retailer, had said in
June that its marketing efforts and more exclusive merchandise
were helping to bolster its market share. It has benefited as
many rivals have closed stores or gone bankrupt.
While cost-cuts aided its profits in the most recent
quarter, sales must grow for Signet to get back to its previous
levels of profitability, the company's finance director Walker
Boyd said in an interview.
Signet would still use discounts to entice shoppers, Boyd
Signet now expects free cash inflow of $275 million to $325
million for the year, up $100 million from its prior target.
Signet said it is closing about 75 stores in the current
fiscal year and "will be selective" with new stores until it
gets a clearer picture of the economy.
Signet shares were up $3.57 to $28.10 in afternoon New York
Stock Exchange trading.
(Reporting by Aarthi Sivaraman in Seattle, with additional
reporting by Dhanya Skariachan in Bangalore; Editing by Maureen
Bavdek and Gerald E. McCormick)